WASHINGTON (AP):

Signalling that manufacturers are leading the economy into a recovery, output from the nation's factories, mines and utilities posted widespread gains in August.

In a further dose of good news, inflation remained essentially non-existent as prices scarcely rose last month.

The August gains in industrial production marked the second straight increase after the global recession dried up the appetites of customers worldwide. Output rose 0.8 per cent, the Federal Reserve said Wednesday, beating analysts' estimates.

Auto sales boosted

In part, the improvement reflected auto sales that were boosted by the government's now-ended Cash for Clunkers programme. But analysts were impressed that output rose broadly across industries.

"Vehicles are not the whole story," Nigel Gault, chief US economist at IHS Global Insight, said in a note to clients.

Gault noted that production rose in five out of 10 categories of durable goods, including machinery and electrical equipment.

The pace of growth is expected to slow later this year. That's partly because the stimulative effect of the clunkers programme, which issued rebates for people who traded in older gas guzzlers for new, fuel-efficient models, will fade.

But industrial stockpiles are so low that production should keep rising even as consumer spending remains weak, economists said. Companies had cut their stockpiles by a record US$159.2 billion in the second quarter. Low inventories tend to signal higher output ahead, because companies eventually must produce more to refill their depleted stockpiles.

Manufacturers "are in a catch-up mode right now," Gault said. "They're adjusting for the fact that the level of demand didn't meet their worst fears."

Factory output, the single-biggest slice of overall industrial activity, also rose for the second straight month.

Auto production led the way, rising 5.5 per cent in August. That followed a whopping 20.1 per cent gain in July, when General Motors and Chrysler reopened many plants that had been closed as the companies restructured and emerged from bankruptcy.