WASHINGTON, July 18 Reuters Production at U.S. factories unexpectedly fell in June, but rebounded in the second quarter as motor vehicle output accelerated after two straight quarterly declines.

Manufacturing output dropped 0.3 last month, the Federal Reserve said on Tuesday. Data for May was revised down to show production at factories falling 0.2 instead of edging up 0.1 as previously reported. Economists polled by Reuters had forecast factory output would be unchanged.

Production decreased 0.3 on a yearonyear basis in June. It rebounded at a 1.5 annualized rate in the second quarter after shrinking at a 0.2 pace in the JanuaryMarch period. Factory output, which had also contracted in the fourth quarter, was boosted by a 36.7 surge in the production of motor vehicles and parts in the second quarter.

Manufacturing, which accounts for 11.1 of the economy, has been hamstrung by 500 basis points worth of interest rate increases from the Fed since March 2022, when the U.S. central bank embarked on its fastest monetary policy tightening campaign in more than 40 years. Spending is also shifting to services and away from goods, which are typically bought on credit.

The Institute for Supply Management39;s measure of national factory activity has remained below the 50 threshold, which indicates contraction in manufacturing, for seven straight months. But there are flickers of hope.

The ISM survey this month showed customers viewed inventories as being too low. Private…