“A rebounding manufacturing sector is indicative of improvement in broader economic activity”, Gennadiy Goldberg, U.S. strategist at TD Securities LLC in New York, said before the report. The gains suggested that manufacturers are adjusting to the obstacles of a stronger dollar, tepid economic growth overseas and lower oil prices, which have led energy companies to slash their orders for equipment and pipelines.
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The Fed said the rebound in manufacturing output was primarily because of an increase in production of motor vehicle assemblies.
Industrial production rose 0.6% month-on-month, while capacity utilization rose 78%. Economists had expected production to increase by about 0.4%.
The report also said the capacity utilization rate rose to 78.0 percent in July from 77.7 percent in the previous month.
Factory orders increased 1.8 percent in June, the Commerce Department reported earlier this month.
Falling oil prices have also dragged down factory output.
The dollar has risen about 20 percent against a basket of foreign currencies in the past 12 months, according to the Fed.
Mining production, which includes drilling for crude oil, was the only category down year-on-year, at -2%.
Manufacturers are generally optimistic about demand and production for the coming months, and the July output data represent a good start to the second half of the year. Other sectors making significant increases in June included wood products (up 1.4 percent), apparel and leather (up 1.0 percent), paper (up 1.0 percent), plastics and rubber products (up 1.0 percent) and chemicals (up 0.5 percent).
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A key category that serves as a proxy for business investment plans edged up 0.7 percent after declines in April and May. The capacity utilization rate is a measure of percentage of factory resources being employed, with a reading above 85 percent usually considered to be inflationary.
