WASHINGTON, Aug 16 Reuters Production at U.S. factories unexpectedly rebounded in July as motor vehicle output surged, but activity continues to be hamstrung by higher borrowing costs.

Manufacturing output increased 0.5 last month, the Federal Reserve said on Wednesday. Data for June was revised lower to show production at factories falling 0.5 instead of 0.3 as previously reported. Economists polled by Reuters had forecast factory output would be unchanged.

Production dropped 0.7 on a yearonyear basis in July. Since March 2022, the Federal Reserve has raised its benchmark overnight interest rate by 525 basis points to the current 5.255.50 range. That has pressured manufacturing, which accounts for 11.1 of the economy.

There are, however, tentative signs that manufacturing could be stabilizing. While the Institute for Supply Management39;s measure of national factory activity contracted for the 7th straight month in July, the pace slowed, with the ISM noting that customers39; inventory levels are at the proper tension … a potential slight positive for future production.

Demand for goods also continues to hold up.

Motor vehicle and parts output accelerated 5.2 last month after declining 3.9 in June. The jump likely reflected difficulties adjusting the data for seasonal fluctuations.

Production typically falls in July when automakers idle plants for retooling. The temporary plant closures, however, do not always happen, which could throw off the model that the Fed…