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US Business Inventories Rise Steadily in May

H.S. Borji
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US Business Inventories Rise Steadily in May

US business inventories increased steadily in May, supporting expectations of a sharp rebound in economic growth in the second quarter.

Business inventories rose 0.5 percent in May, following a gain of 0.6 percent in April that was the biggest in six months, the Commerce Department reported today in Washington. The reading was slightly below forecasts calling for 0.5 percent.

Compared to May 2013, total business inventories increased 5.6 percent, official data showed.

The combined value of distributive trade sales and manufacturers’ shipments for May advanced 0.4 percent, following a 0.8 percent advance the previous month. Compared to May 2013, total sales were up 4.6 percent.

At May’s sales pace, it would take 1.29 months for businesses to clear shelves, unchanged from April. The May 2013 inventories-to-sales ratio was 1.28.
Inventories, which are used to calculate gross domestic product, suggest manufacturers in May were still working their way through current stocks of unsold goods. Retailers, manufacturers and wholesalers restock their shelves to ensure they can meet demand.

The pace of inventory growth in May suggests business expectations were rising steadily in the second quarter. Economists expect faster restocking in the coming months as businesses respond to pent-up demand. This will probably translate into higher factory orders.

Inventories rose across all major sub-categories, official data showed.

Manufacturers posted the biggest monthly gain in inventories at 0.8 percent. Compared to May 2013, inventories at manufacturers were up 3.8 percent.

May inventories rose 0.5 percent for merchant retailers, following a 1 percent increase the previous month. Compared to May 2013, inventories at merchant wholesalers were up 7.9 percent.

Inventories at retailers increased 0.2 percent in May. Year-on-year, retailers’ inventories were up 5.7 percent.

Today’s figures firm up expectations for a strong economic rebound in the second quarter. The US economy is recovery from a devastating first quarter that saw gross domestic product contract at an annualized rate of 2.9 percent. That was the sharpest decline since the first quarter of 2009.

Inventories shaved 1.7 percentage points from GDP in the first quarter, according to Reuters.

Estimates of second quarter growth vary, but generally fall between 3 and 4 percent annually, according to forecasts.

Separately, the Commerce Department said retail sales increased 0.2 percent in June, led by broad-based gains across most retail sub-categories. However, the pace of growth was well below forecasts calling for 0.6 percent, as sales at motor vehicle and parts dealers unexpectedly declined.

In total, nine of the 13 major retail sub-sectors reported growth in June, official data showed.

Rising sales generally support the view consumer confidence is improving. Reuters and the University of Michigan will release the monthly consumer sentiment index Friday. The reading is expected to show modest improvement in consumer confidence in July.

Underscoring the improved consumer mood is a stronger labour market. The US economy added 288,000 nonfarm payrolls in June, pushing the monthly average up to 272,000 in the second quarter.
June marked the fifth consecutive month
employment growth was above 200,000 – the first stretch of its kind in more than 14 years.

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