US business inventories increase strongly in May

US business inventories increased strongly in May, outpacing the growth in sales, government data showed on Friday (Jul 15).

Business inventories rose 1.4 per cent after climbing 1.3 per cent in April, the Commerce Department said. Inventories are a key component of gross domestic product (GDP). Economists polled by Reuters had forecast inventories would rise 1.3 per cent.

Inventories advanced 17.7 per cent on a year-on-year basis in May.

Retail inventories increased 1.1 per cent in May, as estimated in an advance report published last month. That followed a 0.8 per cent rise in April. Motor vehicle inventories rebounded 2.2 per cent instead of the 2.3 per cent gain estimated last month. They fell 2.2 per cent in April.

Retail inventories excluding autos, which go into the calculation of GDP, gained 0.8 per cent as estimated last month.

Business inventories increased at a strong clip in the first quarter as consumer spending slowed. The excess inventory means businesses have little appetite to continue restocking, which could weigh on GDP in the second quarter.

Major US retailers, including Walmart and Target have said they were carrying too much merchandise.

Second-quarter GDP estimates range from as low as a 1.7 per cent annualised rate of decline to as high as a 1.0 per cent pace of growth. The economy contracted at a 1.6 per cent rate in the first quarter because of a record trade deficit.

Wholesale inventories increased 1.8 per cent in May. Stocks at manufacturers rose 1.3 per cent.

Business sales increased 0.7 per cent in May after climbing 0.6 per cent in April. At May's sales pace, it would take 1.30 months for businesses to clear shelves, up from 1.29 months in April. REUTERS