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Originally published Friday, March 16, 2012 at 6:18 AM

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US factory output rose modestly in February

U.S. factories stepped up production in February for the third straight month, helping the economy recover and driving the best job growth since the recession ended.

AP Business Writer

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WASHINGTON —

U.S. factories stepped up production in February for the third straight month, helping the economy recover and driving the best job growth since the recession ended.

The Federal Reserve said Friday that the output of the nation's factories rose 0.3 percent last month. That followed even stronger increases in January and December, which combined for the best two-month stretch since 1998.

Manufacturers made more electronics, energy products and electrical equipment in February. Auto production declined after two big months of growth.

Overall industrial production, which includes output by mines and utilities, was unchanged because mining activity declined sharply and utilities were flat.

The growth in factory output is encouraging, said Paul Ashworth, chief U.S. economist at Capital Economics. Over the three-month period, factory production has grown at a 9.9 percent annual rate.

Ashworth downplayed the slower expansion in February, noting that it can be difficult to sustain such rapid growth over a long period of time.

"If you look over the last few months, manufacturing output growth is actually accelerating, and accelerating to a very strong level," Ashworth said.

Separately, the government said inflation was mostly mild in February outside of a sharp jump in gas prices. The consumer price index increased 0.4 percent. Gas prices rose 6 percent to account for most of the gain.

Food prices were unchanged for the first time in 19 months. And excluding food and energy, so-called "core" prices rose just 0.1 percent.

Factory output has risen 17.4 percent since the depths of the recession in June 2009. It remains 6.7 percent below its pre-recession peak, reached in December 2007.

Manufacturing has strengthened substantially since last summer, when it faltered because of global supply disruptions caused by the Japan earthquake and tsunami.

Factories are benefiting from strong auto sales and growing business investment in machinery and other equipment. The increased demand has led to more jobs.

The government said last week that manufacturers added 31,000 jobs in February. And factories have added 227,000 jobs over the past year. The number of hours worked by factory employees also rose 0.9 percent last month, according to Capital Economics.

Two regional surveys released on Tuesday showed factories in the Northeast kept growing this month at a healthy pace and are hiring more workers. The surveys, conducted by the Federal Reserve banks of Philadelphia and New York, hit their highest readings since April 2011 and June 2010, respectively.

Threats to factory growth remain. Rising fuel prices are increasing the cost of transporting goods to consumers. Europe's financial turmoil could weaken demand for U.S. exports. And another year of weak pay increases could force consumers to cut back on spending.

Still, Ashworth said, the economy appears to be less reliant on manufacturing than it was in the early days of the recovery. Many manufacturers are big exporters, and they might be hurt by the recession in Europe and slower growth in China.

"We've become more upbeat about the recovery, and it's not because we expect more from manufacturing," he said. "It's because we now expect more from construction and housing and services."

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Daniel Wagner can be reached at www.twitter.com/wagnerreports.

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