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US business inventories rise, but likely remained a drag on Q2 growth

July 15,2016 18:16

Businesses accumulated record inventory in the first half of 2015, which outstripped demand. Though the pace of accumulation slowed, inventories remained high in the second half of 2015 and the first quarter of 2016. Business sales rose 0.2 percent in ...and more »



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Reuters

Daniel Acker | Bloomberg | Getty Images
Employee organizes treated lumber at Maze Lumber in Peru, Illinois.

U.S. business inventories rose more than expected in May, likely as higher prices boosted the value of stocks at retailers, but inventory investment likely weighed on economic growth again in the second quarter.

The Commerce Department said on Friday inventories ticked up 0.2 percent after an unrevised 0.1 percent rise in April.

Economists had forecast inventories, a key component of gross domestic product, edging up 0.1 percent in May.

Retail inventories excluding autos, which go into the calculation of GDP, increased 0.4 percent in May after falling 0.2 percent the prior month. The gain, however, probably reflects higher prices, and will unlikely be a boost to GDP growth when adjusted for inflation.

Retail inventories increased 0.5 percent in May, with auto stocks jumping 0.7 percent.

Inventories last contributed to GDP growth in the first quarter of 2015 and have been a drag in each of the last three quarters. Businesses accumulated record inventory in the first half of 2015, which outstripped demand.

Though the pace of accumulation slowed, inventories remained high in the second half of 2015 and the first quarter of 2016.

Business sales rose 0.2 percent in May after advancing 0.8 percent in April. At May's sales pace, it would take 1.40 months for businesses to clear shelves, unchanged from April. That is a relatively high inventory-to-sales ratio and suggests businesses will continue to place fewer orders for merchandise.

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