Production at U.S. factories surged in April, driven by an increase in output at motor vehicle plants, but manufacturing continues to be constrained by higher interest rates.

Manufacturing output accelerated 1.0% last month, the Federal Reserve said on Tuesday. Data for March was revised down to show production at factories declining 0.8% instead of 0.5% as previously reported.

Economists polled by Reuters had forecast production gaining 0.1%. Output dropped 0.9% on a year-on-year basis in April.

Motor vehicle production surged 9.3% last month after declining 1.9% in March. Excluding motor vehicles, manufacturing output rebounded 0.4% after dropping 0.7% in March.

Manufacturing, which accounts for 11.3% of the U.S. economy, has been hamstrung by higher borrowing costs, which are undercutting demand for goods, typically bought on credit. Spending is also shifting from goods to services.

Businesses are holding excess inventory as demand slows, reducing the incentive to place more orders with factories. Pressure is also seen from banks tightening lending standards, which could make credit inaccessible to some small- and medium-sized businesses as well as consumers.

The Institute for Supply Management's measure of national manufacturing activity has contracted for six straight months.

In April, durable manufacturing output rose 1.4%. Output of nondurable goods advanced 0.6%.

Mining output increased 0.6%, boosted by oil and gas extraction, after slumping 1.3% in March. Utilities production tumbled 3.1% after jumping 8.4% in the prior month. Production of electric and natural gas utilities declined in April.

The strong gains in manufacturing and mining offset the plunge in utilities, boosting overall industrial production by 0.5% in April. Industrial output was unchanged in March.

Capacity utilization for the industrial sector, a measure of how fully firms are using their resources, rose to 79.7% from 79.4% in March and is equal to its 1972-2022 average.

Capacity use for the manufacturing sector increased 0.7 percentage point to 78.3% in April. It is 0.1 percentage point above its long-run average.