updated 1/17/2006 12:08:10 PM ET 2006-01-17T17:08:10

The nation’s industrial output posted a solid increase in December as recovery in production of Gulf Coast oil and gas wells offset a slump in auto manufacturing.

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The Federal Reserve reported that production at the nation’s factories, mines and utilities rose by 0.6 percent last month following gains of 0.8 percent in November and 1 percent in October.

The three strong months represented a recovery in industrial production following a 1.3 percent plunge in September that reflected widespread shutdowns of oil wells, refineries and chemical production in the wake of Hurricane Katrina.

For December, manufacturing output edged up a modest 0.2 percent following a 0.4 percent gain in November. The weakness came in production of autos and auto parts, which fell for a third straight month as automakers continued to scale back output in an effort to reduce the level of unsold cars. The 2.8 percent drop in December followed an even bigger decline of 4.9 percent in November.

This weakness was offset by strength in the production of computers, airplanes and furniture.

Output at the nation’s mines, a category that includes oil and gas production, rose by 2.5 percent in December after having soared by 4.7 percent in November. Oil and gas extraction moved up again in December but still remain more than 6 percent below the pre-Katrina levels.

Production at utilities was up 2.7 percent last month as colder-than-normal weather in many areas boosted electricity production.

“Cold weather and a rebound in oil production helped power a strong gain in output,” said Joel Naroff, chief economist at Naroff Economic Advisors.

Analysts were split on what type of year manufacturers would see in 2006, with some worried about a number of drags on future growth.

“The headwinds of rising interest rates, high energy prices and severe import competition have slowed the manufacturing expansion to only a modest pace of growth. The new year is not expected to change this situation,” said Daniel J. Meckstroth, chief economist for Manufactuers Alliance/MAPI, an industry trade group.

But other economists argued that factory production will be supported in 2006 by expected strong spending on the part of businesses for new equipment to expand and modernize.

“Record-high profits, combined with solid economic growth and rising capacity utilization will translate into robust capital spending — all good news for the industrial sectors of the economy,” said Nariman Behravesh, chief economist at Global Insight, a private forecasting firm.

Overall, American industry operated at 80.7 percent of capacity in December, up from 80.3 percent in November.

Manufacturing, the hardest hit sector in the 2001 recession, is expected to continue recovering in 2006 with analysts hopeful that a rebound in growth in Europe and Japan will boost demand for U.S. exports.

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