INSTANT VIEW: Industrial production up two straight months

NEW YORK (Reuters) - U.S. industrial production rose for a second consecutive month in August, Federal Reserve data showed on Wednesday, another piece of evidence that the economic recovery was under way.

KEY POINTS: * The 0.8 percent increase was a touch stronger than the 0.6 percent advance that economists polled by Reuters had expected. The report also showed July's gain was revised up to 1 percent from the originally reported 0.5 percent. * Many economists think economic growth resumed in the third quarter, which would be the first positive reading since the second quarter of 2008. * An increase in auto manufacturing helped lift production in August. The "cash for clunkers" government program that provided incentives to buy new cars spurred a jump in auto sales, and many automakers ramped up production as a result. * The output of utilities gained 1.9 percent as temperatures swung from an unseasonably mild July to a slightly warmer-than-usual August, the Fed said. * The capacity utilization rate, a measure of slack in the economy, edged up to 69.6 percent, although that was still 11.3 percentage points below the average from 1972 through 2008.

COMMENTS:

TOM PORCELLI, SENIOR ECONOMIST, RBC CAPITAL MARKETS, NEW YORK

"It was an overall good number even without autos. Also some of the increase came from utilities. It was unusually warm in August. When one views from that perspective, it doesn't look quite as good.

"The increase from 'cash for clunkers' was meaningful but it was not as much as last month.

"Manufacturing is one of the key areas showing a broad sign of life. It should be adding to top-line GDP. We expect to see a 2.0 percent increase for Q3 and the same increase for Q4."

JACK ABLIN, CHIEF INVESTMENT OFFICER, HARRIS PRIVATE BANK,

CHICAGO:

"This is a shot in the arm for recovery. This is what we're looking for. We're looking for solid evidence -- not just stimulus -- the economy is recovering and this is really the first piece of evidence that needs to fall into place."

KEVIN CARON, MARKET STRATEGIST, STIFEL, NICOLAUS & CO, FLORHAM PARK, NEW JERSEY:

"The industrial output is pretty much consistent with a lot of other data we have been seeing on the economy. It's a response to the typical inventory cycle... things like cash-for-clunkers have strapped inventory off the shelf and that gave a boost to improvements in retail sales, CPI. With these improvements, industrial output was also expected to grow. But we have to remember that we are coming off a very depressed level and that we still have a long way to go."

HUGH JOHNSON, CHIEF INVESTMENT OFFICER, JOHNSON ILLINGTON

ADVISORS, ALBANY, NY:

"These are good numbers, it seems like all of the numbers we've seen yesterday and today are better-than-expected, telling us that the economy is recovering. It's particularly encouraging to see the manufacturing sector of the economy recover. It's hard to describe it in any other way other than to say than August was a very good month for the economy and clearly consistent with the view that the economy is recovering. Generally the manufacturing sector is showing signs of recovering."

KIM RUPERT, MANAGING DIRECTOR, GLOBAL FIXED INCOME ANALYSIS,

ACTION ECONOMICS:

"They were better than expected so it's a pretty encouraging outlook. And it was broad based, not just in the auto sector. We think the recovery is definitely on board. We see the economy growing at about 2 percent on average and then picking up marginally in 2010 but no really climbing to say a 3 percent rate. Still, that's a decent recovery considering where we've been."

MARK VITNER, ECONOMIST, WELLS FARGO ADVISORS, CHARLOTTE, NORTH

CAROLINA:

"It is pretty good news, although not that surprising with car production ramping back up. But even excluding vehicles you saw some gains. The two big increases back-to-back provide some solid momentum that supports the contention that the recession ended around the end of June and supports what Bernanke said yesterday."

DAN GREENHAUS, ANALYST AT MILLER TABAK & CO IN NEW YORK

"It was considerably better than expected, and the previous month was revised higher. There was a large gain in cash for clunkers production and the figures collaborate the idea that manufacturing is increasing in the country. While it remains at depressed levels, the increase is most encouraging."

TICS DATA: Net overall capital outflows from the United States increased to $97.5 billion in July from a revised outflow of $56.8 billion the previous month, Treasury data showed on Wednesday.

Story: [ID:nN1666736] Table: [ID:nWEQ001389]

KEY POINTS: * Net long-term capital inflows, excluding swaps, tumbled to $15.3 billion from $90.2 billion inflow in June. * China increased its Treasury holdings to $800.5 billion in July, up from $776.4 billion in June. The country is the world's largest foreign holder of U.S. debt. * Japan, the second-largest holder, increased holdings to $724.5 billion, up from $711.8 billion in June.

COMMENTS:

LOU BRIEN, MARKET STRATEGIST, DRW TRADING, CHICAGO

"China bought about $24 billion in Treasuries and Japan bought about $13 billion. If there were any concerns about the data, it would be these two biggest holders of Treasuries would lose their appetite for them. So far that hasn't been the case."

BRET BARKER, PORTFOLIO MANAGER, METROPOLITAN WEST ASSET

MANAGEMENT, LOS ANGELES:

"The data is so delayed hard to read too much into it. If you take the average of June and July, things look a bit normal. When I looked at the guts of it, China and Japan are still buying Treasuries...so is Hong Kong. The biggest seller? Luxembourg. I think the guys you want to buy Treasuries are still doing so."

MARKET REACTION: STOCKS: U.S. stock index futures were higher. BONDS: U.S. Treasury debt prices pared gains. DOLLAR: U.S. dollar was stronger against the yen, weaker against the euro.