Image: Tasha Livingston
Mark Duncan  /  AP
Tasha Livingston installs wiring in a door of a 2011 Chevrolet Cobalt on Tuesday at General Motors' Lordstown Assembly plant in Lordstown, Ohio.
updated 6/16/2010 11:58:59 AM ET 2010-06-16T15:58:59

Industrial production rose in May as manufacturing remained a key engine of the economic recovery.

Output at the nation's factories, mines and utilities rose 1.2 percent in May, the Federal Reserve said Wednesday. That comes after April's 0.7 percent increase.

Factories — the single biggest contributor to industrial activity — ratcheted up production 0.9 percent. It was the third straight monthly increase.

Production at utilities increased 4.8 percent as warm weather created more demand for electricity. Mining was the only component that lagged, edging down 0.2 percent.

The gains were felt across every major sector reported by the Fed.

Output of consumer goods was boosted by a strong 2.6 percent gain for consumer durables. Greater production of automotive products and home electronics more than offset declines for home goods, such as appliances, furniture and carpeting.

U.S. factories were operating at 74.7 percent of capacity — an increase of 1 percent from April, but still 5.9 percentage points below the average since 1972.

Many businesses are restocking their shelves after slashing inventories during the recession. Consumers are showing more signs of confidence in the recovery, despite high unemployment and tighter credit.

Paul Dales, a senior economist with Capital Economics, said he doesn't expect the strength of U.S. manufacturing to fade. But he warned that growth could slow in the coming months as the European debt crisis and a stronger dollar, which makes U.S. goods more expensive overseas, have an impact.

"Overall, another positive industrial report," Dales said, "but the chances of this pace of recovery being maintained in the second half of the year look a lot slimmer now than they did a couple of months ago."

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