U.S. industrial output was unexpectedly flat in January, but the second straight month of gains in manufacturing pointed to underlying strength in the economy.
Industrial production in January was held down by steep declines in mining and utilities, the Federal Reserve said on Wednesday.
Economists polled by Reuters had expected output to rise 0.7 percent. But upward revisions to December's industrial output to show a solid 1.0 percent increase instead of a 0.4 percent gain, took the sting out of the report.
Some encouragement can be taken from the sharp upward revision to the performance in December, which underscores the turnaround in U.S. economic fortunes in recent months, said Millan Mulraine, senior macro strategist at TD Securities in New York.
Data so far suggest the economy got off to a firmer start in 2012, even though overall retail sales in January missed expectations.
Last month, manufacturing advanced 0.7 percent after increasing by an upwardly revised 1.5 percent in December. That was previously reported as a 0.9 percent gain.
Manufacturing was buoyed by motor vehicle production, which jumped 6.8 percent after increasing 3.8 percent in December.
Unseasonably warm winter weather caused utilities output to plunge 2.5 percent after a 2.4 percent decline the prior month. Mining production fell 1.8 percent after rising 0.9 percent.
Manufacturing remains the main pillar of the economy, although it only accounts for about 12 percent of gross domestic product and 11 percent of nonfarm payrolls.
A report from the New York Federal Reserve showed a gauge of factory activity in New York state rose to its highest level in more than 1-1/2 years in February.
But slowing new orders and further declines in unfilled orders suggested activity in that region could be close to peaking. There was a rise in shipments and companies increased hours for existing workers.
In the industrial production report, capacity utilization, a measure of how fully firms are using their resources, fell to 78.5 percent from 78.6 percent the prior month. That was 1.8 percentage points below the 1972-to-2011 average.
Analysts were expecting capacity use at 78.6 percent. Capacity use in manufacturing rose to 77.0 percent, the highest since April 2008.
Officials at the Fed tend to look at utilization measures as a signal of how much slack remains in the economy - how far growth has room to run before it becomes inflationary.
(Reporting By Lucia Mutikani; Editing by Neil Stempleman)