Cautious belief in economic recovery amid positive reports

WASHINGTON - Hopes that the economy can sustain its recovery drew support yesterday from news that industrial output rose for a seventh straight month and home construction hit a six-month peak last month.

The report on industrial production from the Federal Reserve showed gains in all three major categories: manufacturing, mining and utilities. It was the first such collective show of strength since August. Manufacturing output rose 1 percent, led by a nearly 5 percent gain in auto production. Manufacturing has been a big contributor to the early stages of the economic rebound. In the fourth quarter, for example, roughly two-thirds of growth came from a burst of manufacturing activity.

Factories have been churning out goods for businesses that had let their stockpiles dwindle as a way to save cash.

A separate sign of strength came in a Commerce Department report on housing construction. Home building posted a better-than-expected increase last month. Construction rose 2.8 percent to a seasonally adjusted annual rate of 591,000 units. That was better than the 580,000 annual pace economists were forecasting. Applications for building permits, a gauge of future activity, fell 4.9 percent to a rate of 621,000. That followed two months of sharp increases.

Manufacturers are benefiting "across the board" as companies rebuild inventories, creating especially robust demand for metals, chemicals and paper, said Thomas Duesterberg of the Manufacturers Alliance/MAPI, an industry group.

Still, companies will eventually let their inventories fall again unless consumers - who account for about 70 percent of the economy - spend more. Unlike past rebounds driven by the spending of ordinary shoppers, this one appears to hinge on spending by businesses, foreigners and - until it runs out - government stimulus.

Last month's gains in home construction add to evidence that the industry is starting to sustain recovery from its worst slump in decades. Still, analysts noted that most of the strength came from a jump in the volatile sector of apartment buildings. The much larger single-family category rose only slightly and didn't make up for a sharp decline in December. - AP