The nation's factories cranked out more products in July, miners dug more minerals and builders broke ground on more homes, the government said yesterday in three reports that showed some rebound in economic activity last month.
Meanwhile, falling prices for apparel, toys, gasoline and other items pulled down the Labor Department's consumer price index in July, confirming that inflation had retreated since spurting in the spring.
Together, the figures heartened those analysts who expect the economy to gain steam in coming months after its recent slowdown.
High oil prices in recent months "tapped a brake on [the economy's] momentum but didn't stop us from moving forward," said Diane Swonk, chief economist at Bank One Corp. "Instead of the car stalling out, we just slowed our speed a bit."
The economic figures did not change analysts' widespread expectation that the Fed will likely raise its benchmark short-term rate at least two more times before the end of the year, to 2 percent from its current 1.50 percent level. Fed policymakers expect the economy to keep gaining strength in coming months and think they must raise the benchmark rate to avoid fueling inflation.
The nation's industrial production -- the output of its factories, mines and utilities -- rose 0.4 percent in July after dropping 0.5 percent in June, the Federal Reserve reported yesterday. Much of the gain was due to a strong 0.6 percent rise last month in factory production, which had dropped 0.2 percent in June.
Production of machinery, appliances, paper, chemicals, computers and electronic goods all rose. However, auto production fell for the third straight month.
Home builders were scrambling last month to keep up with booming new home sales, which reached a record high in May and stayed close to that record in June, analysts said.
Builders broke ground on 8.3 percent more homes in July than the month before, driving housing starts to a 1.98 million unit seasonally adjusted annual pace, up from 1.83 million in June, the Commerce Department said. Building permits, a sign of future construction, also jumped.
Analysts said housing starts in June were probably limited by wet weather across the nation, which pushed some projects into July.
The housing starts report showed "continued strength, albeit with some leveling off near historic highs," said Scott Winningham of Stone & McCarthy Research, in an analysis for clients.
Many home buyers had rushed into the market in the spring to take advantage of relatively low mortgage interest rates, which were then expected to begin rising.
Mortgage rates did turn upward for several weeks in May and June, but they have fallen again in response to signs of economic slowing in June and July. The average rate for a 30-year mortgage, which exceeded 6 percent in June, dropped to 5.85 percent last week, according to mortgage financier Freddie Mac.
Consumer prices fell 0.1 percent in July, seasonally adjusted, reflecting a broad slowdown in price increases and a slide in energy costs from the highs they touched in June, the Labor Department reported.
The July drop in the department's consumer price index followed increases of 0.3 percent and 0.6 percent in June and May, respectively.
After excluding volatile energy and food prices, the so-called core-CPI rose a very modest 0.1 percent, the same as in June.
Prices fell in July for new autos, apparel, education and communications, recreation and energy. Gasoline prices tumbled 4.7 percent from their June levels.
The CPI report appeared to support the Fed's view that the spring surge in inflation was largely due to "transitory" factors such as higher prices for energy, metals and many other raw materials, several analysts said.
But some economists also said that July's tame inflation in part reflected the slower economy, and it remained unclear whether consumer prices would flare again as oil prices continue to rise. Benchmark crude scheduled for September delivery closed at a new high of $46.75 a barrel yesterday on the New York Mercantile Exchange.
"This report shows that inflation, like the economy, took a pause in July," said Drew Matus of Lehman Brothers Global Economics, in an analysis for clients. "Whether it can be maintained if or when growth returns to a more normal trend is the key question."
Gasoline prices have fallen through the summer since peaking just before Memorial Day weekend, even though crude oil prices have been rising. U.S. supplies of gasoline remain high relative to demand, causing prices to ebb; meanwhile, global crude prices have been fanned higher by fears that supplies could be disrupted by terror attacks or political turmoil in some oil-producing countries.
The average national price of a gallon of unleaded regular was $1.86 yesterday, according to AAA.
That's down from $1.92 a month ago and the high of $2.05, hit on May 26. But it's still well above the $1.59 average price a year ago.
Although inflation was tame for the month, the CPI was up 3 percent for the 12 months ended in July, above the level that the Federal Reserve wants to see.