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US business inventories post largest gain in nine months

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US business inventories rose more than expected in March as automobile stocks recorded their biggest increase since 2013, suggesting that the first-quarter's weak economic growth estimate could be revised higher.

[WASHINGTON] US business inventories rose more than expected in March as automobile stocks recorded their biggest increase since 2013, suggesting that the first-quarter's weak economic growth estimate could be revised higher.

The Commerce Department said on Friday that inventories increased 0.4 per cent in March, the largest rise since June, after an unrevised 0.1 per cent dip in February.

Auto inventories surged 2.3 per cent, the biggest increase since October 2013, following a 1.6 per cent rise in February. The inventory-to-sales ratio for motor vehicles rose to 2.30 in March, the highest since April 2009.

Inventories are a key component of gross domestic product. Retail inventories excluding autos, which go into the calculation of GDP, rose 0.4 per cent in March after increasing 0.2 per cent in February.

The government reported last month that inventories subtracted three-tenths of a per centage point from first-quarter GDP growth, helping to restrict economic growth to a 0.5 per cent annualized rate.

Data on retail sales, construction spending and factory orders have suggested the advance first-quarter GDP growth estimate could be raised to a 0.9 per cent rate when the government publishes its revision later this month. The economy grew at a 1.4 per cent pace in the fourth quarter of 2015.

Businesses accumulated record inventory in the first half of 2015, which outpaced demand. Though the pace of accumulation slowed, inventories remained high in the second half of 2015 and the first quarter of 2016.

Business sales rose 0.3 per cent in March, the largest increase in nine months, after falling 0.3 per cent in February. At March's sales pace, it would take 1.41 months for businesses to clear shelves, unchanged from February.

The high ratio suggests businesses could continue working through the inventory overhang through the first half of the year, hurting manufacturing and curbing GDP growth.

REUTERS