US business inventories edge up in July; sales weak

[WASHINGTON] US business inventories barely rose in July, suggesting businesses were starting to scale back inventory accumulation, which could further pressure the struggling manufacturing sector.

The Commerce Department said on Tuesday business inventories edged up 0.1 per cent, the smallest rise since March. That was in line with economists' expectations. Inventories in June were downwardly revised to show a 0.7 per cent gain after the previously reported 0.8 per cent increase.

Inventories are a key component of gross domestic product. Retail inventories excluding autos, which go into the calculation of GDP, rose 0.2 per cent in July after increasing 0.7 per cent in June.

Inventory investment contributed 0.22 per centage point to the second quarter's annualized 3.7 per cent GDP growth pace. Business inventories have increased by more than $100 billion in each of the last two quarters, a record back-to-back rise that economists say is unsustainable given the current sales pace.

An inventory drawdown would weigh on manufacturing, where activity already has been undermined by a strong dollar, weak global demand and lower crude oil prices.

In July, business sales nudged up 0.1 per cent after increasing by an upwardly revised 0.3 per cent in June. At July's sales pace, it would take 1.36 months for businesses to clear shelves, a relatively high ratio that suggests businesses will need to cut back on stocks. The ratio was unchanged from June.

REUTERS