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Industrial Production Rises in August

The Federal Reserve says industrial production and capacity utilization edged up in August.

(Updated with additional information.)

NEW YORK (

TheStreet

) -- The

Federal Reserve

said industrial production edged up 0.2% in August while capacity utilization came in at 74.7%, slightly better than July's revised figures.

The data came in slightly worse than expected. Industrial production at the nation's factories was expected to edge up 0.3% in August after a downwardly revised rise of 0.6% in July. Capacity utilization was expected to come in at a rate of 75%, from a downwardly revised 74.6% in July.

Operating rates remain well below the 1972-2009 average of 80.6%.

Production of motor vehicles and parts plummeted 5.2%, after an 8.3% jump in July. Excluding autos, production elsewhere in the economy grew by 0.4% after a revised 0.3% increase in July.

Home electronics production fell 0.3% last month. Appliances and furniture fell 2.1%. Business equipment rose 0.7%.

Mining industry output increased 1.2% with capacity utilization rising to 86.3%, from a revised 85.3% in July.

Production in the utilities sector fell 1.5% last month with utilization falling to 81%, from 82.4%.

Production and utilization data are particularly notable as the rate of profit growth finally begins to slow, Jeffrey Kleintop, chief market strategist for LPL Financial, told

TheStreet

, explaining that year-over-year comparisons were easier in the first half of 2010. He expects the U.S. may see only 10% earnings growth in the second half, relative to year-over-year growth rates as high as 50% in recent quarters. He said investors will pay close attention to see how companies can expand and grow their profits without much in the way of increased sales growth.

In the first 10 minutes of trading Wednesday the

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ETF lost 0.3% and the

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The Fed's monthly report on industrial production and related capacity utilization covers manufacturing, mining, and electric and gas utilities. The data is one of several key reports used by the Fed in setting monetary policy.

Generally speaking, better-than-expected data pressures stock and bond prices and leads to inflation and higher interest rates. Weaker-than-expected data often lifts stock and bond prices while pointing to deflation and lower interest rates.

"The industrial sector, together with construction, accounts for the bulk of the variation in national output over the course of a business cycle," according to the Fed. "The industrial detail provided by these measures

industrial production and capacity utilization helps illuminate structural developments in the economy."

The reports help explain shifts in gross domestic product, the details of which highlight how much various industries participate in economic expansion or contraction, and can provide clues on industries gaining or losing prominence in the overall economic picture.

In other economic news, the New York Federal Reserve's key manufacturing index that measures activity in the New York region came up shorter than expected Wednesday morning, pointing to a slower pace of growth but growth nonetheless.

The Empire State Manufacturing Survey index dropped 3 points to 4.1 for early September

, after rising 2 points for a reading of 7.1 in August. Economists expected the index to decline to a reading of 6.4, according to

Briefing.com

, though any reading above zero indicates growth.

>>Empire State Manufacturing Falls

The degree of optimism about the six-month outlook continued to deteriorate, with the future general business conditions index hitting its lowest level since early 2009. The future general business conditions index fell 4 points to a reading of 31.3, indicating that manufacturers still expect business conditions to improve but at a less robust pace than previously thought.

The surveys have shown a slowdown in recent months and are closely watched by investors. August's reading of 7.1 was sharply lower than the average of 23.5 in the second quarter.

-- Written by Miriam Marcus Reimer in New York.

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