Factories, builders lift economy

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WASHINGTON (AP) — The U.S. economy looked more resilient Wednesday after reports showed factories produced more goods in July and homebuilders grew more confident in the housing recovery.

At the same time, consumer prices stayed flat last month. Low inflation could boost consumer spending and lift growth in the second half of the year.

Economists approached the mostly positive data with some caution. The economy remains weak after a sluggish spring. And a severe drought in the Midwest could send food prices surging later this year and crimp consumer spending.

Still, the gains were encouraging. And they followed other July reports that showed consumers stepped up retail spending and employers created the most jobs since February.

Factories made more cars, computers and airplanes last month, the Federal Reserve said. That helped drive industrial production, which includes output at factories, mines and utilities, up 0.6 percent in July from June, the fourth straight increase.

Factory production has risen 21.9 percent since its recession low hit in June 2009 and is just 1.7 percent below the pre-recession peak for factory output reached in April 2007.

Still, manufacturing slowed this spring as consumers cut back on spending and businesses invested less in machinery and equipment. Some worry that manufacturing could weaken further in coming months if Europe’s financial crisis and slower global growth cut demand for U.S. exports.

“Despite the deteriorating global backdrop, U.S. manufacturing continues to expand,” said Paul Ashworth, chief U.S. economist at Capital Economics. “Manufacturing is hanging in there, but the question is for how much longer?”

Homebuilder confidence rose in August to a five-year high, according to the National Association of Home Builders/Wells Fargo sentiment index.

The index rose to 37 from 35 in July. While that’s well below 50, the dividing line between positive and negative sentiment about the housing market, the index has been trending higher since October. And in August, many builders reported seeing their best sales level since February 2007.

Consumer prices were unchanged in July from June, the Labor Department said. A small drop in energy costs offset slightly higher food prices. The consumer price index hasn’t increased since March, evidence that the weak economy is keeping inflation in check.

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