US wholesale inventories up solidly, signal upward GDP revision

[WASHINGTON] US wholesale inventories rose more than expected in June, the latest indication that the economy grew at a faster pace in the second quarter than reported last month.

The Commerce Department said on Tuesday that wholesale inventories increased 0.9 per cent as a rise in oil prices boosted the value of petroleum stocks. Inventories also were buoyed by a surge in farm products.

Wholesale stocks were revised to show a 0.6 per cent rise in May instead of the previously reported 0.8 per cent increase. Economists polled by Reuters had forecast wholesale inventories rising 0.4 per cent in June.

Inventories are a key component of gross domestic product changes. The component of wholesale inventories that goes into the calculation of GDP - wholesale stocks excluding autos - increased 0.8 per cent.

June's increase in wholesale inventories is more than the 0.7 per cent gain the government had assumed last month when it published its advance second-quarter GDP estimate.

In that report, the government said business inventories increased US$110.0 billion in the April-June period, making no contribution to the 2.3 per cent annualized GDP growth rate.

The stronger-than-forecast wholesale inventories data for June suggests that second-quarter GDP will be revised high.

It also added to data last week showing manufacturers carried more goods in June than the government had estimated in the second-quarter GDP snapshot. In addition, imports in June were less than the government had forecast in the GDP report.

Sales at wholesalers edged up 0.1 per cent in June. Sales had been sluggish since last August, in part due to the negative impact of lower oil prices on the value of petroleum goods sales.

At June's sales pace it would take 1.30 months to clear shelves, up from 1.29 months in May. An inventory-to-sales ratio that high usually means an unwanted inventory build-up, which would require businesses to liquidate stocks. That would weigh on manufacturing and economic growth.

REUTERS