US business inventories unexpectedly fell in March, pulled down by a decline in stocks at manufacturers.

Business inventories dipped 0.1 per cent after being unchanged in February, the Commerce Department said on Tuesday (May 16). Economists polled by Reuters had expected inventories, a key component of gross domestic product (GDP), would be unchanged.

Inventories increased 6.5 per cent on a year-on-year basis in March.

Private inventory investment declined in the first quarter for the first time in 1-1/2 years, restricting GDP growth to a 1.1 per cent annualised pace in that three-month period. The inventory drawdown reflected a reduction of stock by businesses in anticipation of weaker demand later this year.

Stronger consumer spending early in the first quarter also contributed to the inventory rundown. Leaner inventories are potentially good news in the calculation of GDP for the second quarter. There had been fears that a correction of the inventory bloat would result in a sharper economic downturn.

But the first-quarter decline led some economists to believe that much of the inventory liquidation was probably over.

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Retail inventories increased 0.7 per cent in March as estimated in an advance report published last month. They gained 0.2 per cent in February. Motor vehicle inventories shot up 1.6 per cent instead of 1.5 per cent as estimated last month. They increased 1.4 per cent in February.

Retail inventories excluding autos, which go into the calculation of GDP, rose 0.3 per cent instead of 0.4 per cent as estimated last month. Wholesale inventories were unchanged, while stocks at manufacturers dropped 0.8 per cent.

Business sales decreased 1.1 per cent after falling 0.3 per cent in February. At March’s sales pace, it would take 1.39 months for businesses to clear shelves, up from 1.38 months in February. REUTERS