U.S. industrial production rose a stronger-than-expected 0.4% in December after declining a revised 0.1% in the prior month, the Federal Reserve said Jan. 17. Most economists had been expecting December production to rise just 0.1%.

The report, measuring the output of U.S. factories, mines and utilities, showed a 3% year-over-year increase.

Manufacturing production increased 0.7% in December while mine output rose 0.8%. Production at utilities declined 2.6%.

The rate of capacity utilization -- seen as a key measure of inflationary pressures for industry -- rose to 81.8%, 0.8 percentage points above its 1972-2005 average.

“The 0.4% increase in industrial production and 0.7% gain in manufacturing production in December were surprisingly strong given the weakness in housing and lackluster growth in Christmas sales,” said Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI.

“Exceptionally warm weather brought buyers to the motor vehicle showrooms which helped production in the industry. Furthermore, strong business profitability and solid balance sheets remain very positive for investment spending which helped the rebound in machinery, electronic, and electrical equipment," he added.

“Even with the December rebound, manufacturing production declined 1.4% at annual rate in fourth quarter 2006,” he added. “The Manufacturers Alliance/MAPI expects to see manufacturing consistently growing again in first quarter 2007. The December report is a positive signal.”