WASHINGTON – U.S. industrial production increased in December at the strongest pace in two years, as auto factories cranked out more vehicles and power plants helped heat homes and businesses.

The Federal Reserve said Wednesday that output at America’s factories, mines and utilities rose 0.8 per cent last month, the largest percentage gain since November 2014.

The report suggests that the U.S. industrial sector is recovering from a prolonged slump. The combination of falling energy prices and a strong dollar hurt manufacturers, who saw orders for pipeline and drilling equipment cancelled as their goods became more expensive abroad. The Fed measure of industrial output began to slump at the start of 2015 and only began to show signs of rebounding in the middle of last year.

In December, manufacturing output improved 0.2 per cent, led by gains in motor vehicles and primary metals that offset declines in textiles and chemicals. Factory production has increased 0.2 per cent over the past 12 months, a sign that manufacturers may have adjusted to the headwinds caused by the energy sector and sluggish global growth.

Utility output surged 6.6 per cent as temperatures fell after an unseasonably warm November.

Mining production, which includes oil and natural gas drilling, was flat last month.