By David Harrison 

U.S. manufacturing increased in June for the second straight month, a sign of economic recovery in the weeks before the recent surge in coronavirus cases.

Industrial production -- a measure of output at factories, mines and utilities -- rose a seasonally adjusted 5.4% in June from May, the Federal Reserve said Wednesday. That was a bigger increase than the 4% rise anticipated by economists surveyed by The Wall Street Journal.

The index for May was unrevised at 1.4% while the index for April was revised down to a 12.7% drop from a 12.5% drop.

As U.S. factories reopened in May and June, they helped drive a recovery from April's record decline. Still, despite the recent gains, the index for the second quarter as a whole fell at an annual rate of 42.6%, the largest quarterly decrease since World War II.

A separate Fed report said economic activity increased this summer, but remained well below levels seen before the pandemic. The Fed's beige book, which compiles business anecdotes from around the country, said employers increased hiring across the country as many businesses reopened. Still, many companies reported new layoffs and said it was difficult to rehire workers given health and safety concerns, child-care needs and expanded unemployment benefits that exceed normal pay for some workers.

Some businesses were concerned the pace of recovery wouldn't continue if the coronavirus wasn't contained. In the Cleveland Fed district, more firms cut worker pay, particularly for higher-salaried employees, than in the last beige book's reporting window.

The pace of economic recovery in St. Louis had slowed since mid-June. "One staffing contact reported small firms were 'decimated,' estimating that 5% of their small clients had filed for bankruptcy and expecting up to 25% to do so by the end of the year," the report said.

June's industrial output rebound was led by the manufacturing sector, the biggest component of industrial production, which posted a 7.2% gain, driven by production of autos and parts. Mining output decreased 2.9% and utilities output rose 4.2%, the Fed said.

It isn't yet clear how the recent uptick in new coronavirus cases will affect output in the coming months. Cases started surging toward the end of June and have continued rising. States such as California and Texas have imposed or are considering new restrictions to combat the virus, which could prompt more factory closures.

"Ongoing issues related to virus-related interruptions as well as weak demand will continue to restrain output going forward," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics, in a note to clients.

Capacity utilization, a measure of slack in the industrial economy, also rose more than expected to 68.6% in June from a revised 65.1% in May, the Fed said. Economists surveyed by the Journal had expected capacity utilization to reach 67.5% last month.

--Sarah Chaney contributed to this article.

Write to David Harrison at david.harrison@wsj.com

(END) Dow Jones Newswires

July 15, 2020 15:57 ET (19:57 GMT)

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