U.S. industrial production was reported 0.8% higher in December, signaling a brighter picture for the U.S. manufacturing sector.

BMO Nesbitt Burns Inc. chief economist Sherry Cooper says that the reading is a little stronger than expected. However, downward revisions in November left the overall picture close to market expectations. Also, capacity utilization rose to 76.2% from 75.6%.

Manufacturing was up just 0.3% while utilities represented the lion’s share of the gain with a 5.2% rise, Cooper says. “Strong increases in the high-tech component of manufacturing continued the healthy trend seen lately. However, the gains have been broadly based within the industrial sector. Some 69% of industries rose in the last three months in a strong signal that real improvement is underway.”

Cooper notes that it takes only a small factory production rise to make the utilization rate go up. “Slack will likely disappear rapidly this year.”

RBC Financial Group says that the recovery in the manufacturing sector continues to gain momentum. “The general business conditions index of the Empire State Manufacturing Survey rose for the 10th straight month in February to a record high 42.1,” says John Anania
assistant chief economist for RBC.

Anania notes the more comprehensive industrial production report for January, also released today, reveals that industrial production rose 0.8% on the month and that capacity utilization rose to 76.2% from 75.6%. The jump in production was partly weather-related with cold weather driving utilities output up 5.2%. Manufacturing output rose at a more modest, but still respectable, 0.3%, he says in a report.

“Today’s manufacturing-related reports suggest that production is increasing to meet rising business and consumer sales and to rebuild depleted stocks of inventories,” he says. “With the dollar’s decline and a policy environment heavily tilted towards growth, more gains in manufacturing output are expected throughout 2004.”