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US business inventories post largest fall since 2011

[WASHINGTON] US business inventories in November posted their biggest drop since 2011 as businesses stepped up efforts to reduce stockpiles of unsold merchandise, the latest sign that economic growth slowed significantly in the fourth quarter.

The Commerce Department said on Friday inventories fell 0.2 per cent, the largest decline since September 2011, after a downwardly revised 0.1 per cent dip in October. Inventories in October were previously reported to have been unchanged.

Economists polled by Reuters had forecast inventories slipping 0.1 per cent in November. 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 November after a downwardly revised 0.3 per cent gain in October. They were previously reported to have increased 0.4 per cent in October.

A record inventory accumulation in the first half of 2015, which outstripped demand, left businesses saddled with unsold merchandise and little incentive to order more goods. That has contributed to a sharp slowdown in manufacturing activity.

Inventories subtracted 0.71 per centage point from third-quarter GDP, limiting the rise in output to a 2.0 per cent annualized rate. Fourth-quarter GDP growth estimates range between a 0.5 per cent and 1.4 per cent pace.

In November, business sales fell 0.2 per cent after declining 0.3 per cent in October. At November's sales pace, it would take 1.38 months for businesses to clear shelves, unchanged from October.

The still lofty ratio suggests businesses could continue working through the inventory bloat for a while, and hold back GDP growth.