PRODUCTION at US factories strengthened in July by the most in four months, rebounding above pre-pandemic levels and indicating that manufacturers are coping with snarled supply chains and shortages. The 1.4 per cent increase followed a revised 0.3 per cent drop in June, Federal Reserve data showed on Tuesday. Total industrial production, which also includes mining and utility output, rose 0.9 per cent in July.

The median estimate in a Bloomberg survey of economists called for a 0.7 per cent monthly increase in factory production and a 0.5 per cent gain in industrial output. While the results included a jump in vehicle production, output gains during the month were fairly broad.

Resilient business spending, steady consumer demand and lean inventories have fuelled output growth but also driven up order backlogs as producers grapple with difficulties sourcing materials and parts. The mismatch of supply and demand highlights room for further growth in factory output.

Manufacturers continue to face higher input prices and a near record number of job vacancies. Recent data from the Labor Department showed a gauge of prices for processed goods used in the production process were up almost 23 per cent from a year ago - the largest annual advance since 1975. Meantime, job openings within manufacturing are close to a record at 826,000.

US carmakers continue to be constrained by a tight global chip market. The Fed's industrial output report showed production of motor vehicles increased 11.2 per cent last month - the most in a year - after a 5.9 per cent decline the previous month. The Fed attributed the outsized gain to cancellations of typical July plant shutdowns to retool for new models. Excluding vehicles and parts, manufacturing output rose 0.7 per cent after a 0.1 per cent gain.

Categories including machinery, primary metals, plastics and electrical equipment and appliances advanced from the prior month. Manufacturing capacity utilisation, a measure of plant use, jumped to 76.6 per cent, finally breaking above the pre-pandemic level of 75.5 per cent. Total industrial capacity rose to 76.1 per cent.

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Meanwhile, a Commerce Department report showed that US retail sales fell in July by more than forecast, reflecting a steady shift in spending towards services and indicating that consumers may be growing more price-conscious as inflation picks up.

The value of overall retail purchases dropped 1.1 per cent last month following an upwardly revised 0.7 per cent increase in June, Commerce Department figures showed on Tuesday. The median estimate in a Bloomberg survey of economists called for a 0.3 per cent decrease. Excluding vehicles, sales decreased 0.4 per cent in July.

Total receipts trailed estimates by a wide margin as declines in motor vehicle and e-commerce sales weighed on the figure. Restaurant spending increased, though at a more moderate pace than in previous months. The emergence of the Delta variant poses a risk to economic activity and could curb demand for services like travel and entertainment.

Higher prices for things like groceries, meals out, personal care and apparel risk limiting discretionary spending in the coming months. A report last week from the University of Michigan showed buying conditions deteriorated to the lowest since April of last year as inflation remained elevated.

The retail data point to a softening in third-quarter consumer spending growth. Economists forecast outlays to grow at an annualised 4.5 per cent pace in the current period, significantly slower than the pace estimated a month ago and a sharp deceleration from the sizzling 11.8 per cent rate seen in the second quarter.

According to the Commerce Department's report, the drop in July sales was fairly broad with eight of 13 categories registering decreases. BLOOMBERG