U.S. business inventories rise moderately in May

WASHINGTON (Reuters) – U.S. business inventories rose moderately in May as sales rebounded, suggesting that inventory accumulation could have been a drag on economic growth in the second quarter.

The Commerce Department said on Tuesday that business inventories increased 0.3% after advancing 0.5% in April.

Inventories are a key component of gross domestic product. May’s reading was in line with economists’ expectations.

Retail inventories increased 0.4% in May instead of rising 0.5% as estimated in an advance report published last month. Motor vehicle inventories rose 0.7% in May, rather than advancing 0.8% as previously reported.

Retail inventories excluding autos, which go into the calculation of GDP, rose 0.3% as reported last month.

Economists expect inventories subtracted from GDP growth in the second quarter after contributing 0.55 percentage point to the economy’s 3.1% annualized growth pace in the January-March period. The Atlanta Federal Reserve is forecasting GDP rising at a 1.4% rate in the second quarter. The government will publish its snapshot of second-quarter GDP next week.

The accumulation in inventories reflects tepid domestic demand early in the year. A trade war between the United States and China has also added to the inventory bloat as businesses stocked up in an effort to get ahead of the tariff fight.

Wholesale inventories increased 0.4% in May. Stocks at manufacturers rose 0.2%. Most of the inventory overhang is in the automobile industry, which is experiencing a slowdown in sales, contributing to weak production at factories.

Business sales rebounded 0.2% in May after falling 0.2% in the prior month. At May’s sales pace, it would take 1.39 months for businesses to clear shelves, unchanged from April.

The motor vehicle inventory-to-sales ratio was unchanged at 2.35 months in May.

Reporting by Lucia Mutikani; Editing by Andrea Ricci

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