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The Federal Reserve’s latest survey of industrial production suggests the U.S. economy has moved past the effects of the Japanese tsunami and nuclear tragedy.

Industrial production jumped 0.9 per cent in July, a larger gain than Wall Street’s consensus estimate and the strongest reading this year. Utilities drove some of the increase as sweaty Americans cranked up their air conditioners amid an extreme heat wave. But a big push also came from the manufacturing industry, which climbed 0.6 per cent compared with 0.2 per cent in June.

The increase in manufacturing was led by the automobile and parts sectors, which surged 5.9 per cent. Output of other durable goods, including electronics, also increased significantly. This suggests the supply disruptions caused by Japan’s natural disaster will be a first-half phenomenon. (Manufacturing and automobiles contracted in April, the month immediately following the earthquake.) Economists said the industrial production numbers bolster their expectations for faster economic growth over the rest of the year.

Improved optimism is relative, of course. Supply chains are reconnecting at the same time global economic growth is slowing, as emerging markets raise borrowing costs to curb inflation and Europe fights to contain its debt crisis.

Manufacturers used 75 per cent of their production capacity in July. That’s much better than a year earlier, when capacity utilization was at 72.4 per cent, but still weak compared with an average between 1972 and 2010 of 79 per cent.

The normalization of global trade links will make the climb back easier, but the U.S. economy still is facing significant headwinds. The better-than-expected industrial data did little to buoy markets, which were lower Tuesday on data that showed the euro zone’s gross domestic product barely grew in the second quarter.

“Overall, we still think that another recession will just about be avoided,” Paul Dales, senior U.S. economist at Capital Economics, wrote in a note Tuesday. “But it is clear that industry, which was once the shining light of this recovery, will struggle.”

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