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US Business Inventories Rise Steadily in June

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

US Business Inventories rose steadily in June, but a modest gain at non-automobile retailers suggests the economy grew at a slightly slower rate in the second quarter.

Business inventories – a measure of stockpiles held by manufacturers, retailers and wholesalers that is used to calculate gross domestic product – increased 0.4 percent in June, following a 0.5 percent gain the previous month, the Commerce Department reported today in Washington.

Economists forecast an increase of 0.5 percent.

Compared to June 2013, business inventories were up 5.8 percent.

Retail inventories excluding automobiles, which are used to calculate GDP, increased 0.3 percent in June, after registering no change the previous month.

Changes in business inventories reflect the smallest component of gross domestic product, but are very important in signaling changes in aggregate demand, a key indicator of future economic activity.

The combined value of distributive trade sales and manufacturers’ shipments rose 0.3 percent to $1,346.7 billion. This translated into an annualized gain of 4.7 percent.

The inventory-to-sales ratio at the end of June was 1.29, little changed from the June 2013 ratio of 1.28.

Retailers registered the largest increase in inventories at 0.5 percent. Compared to June 2013, retail inventories were up 5.9 percent. Retail sales in June had increased 0.2 percent.

In a separate report, the Commerce Department said retail and food services sales were unchanged in July, a sign consumers were still hesitant about opening their wallets even as the economy improved.

Economists forecast retail sales to increase 0.2 percent.

Retail trade increased at an annual rate of 7.3 percent in health and personal care stores. Sales at motor vehicle dealers were up 6.4 percent from a year earlier.
Core sales, which exclude automobiles, gasoline, building materials and food, edged up 0.1 percent, official data showed.

Manufacturing inventories increased 0.3 percent in June, following a 0.8 percent gain the previous month. Year-on-year, inventories in this category were up 4 percent. Manufacturing sales were up 0.5 percent, official data showed.

Merchant wholesalers saw inventory levels rise 0.3 percent, which translated into a year-over-year gain of 7.9 percent. Sales in this category increased 0.2 percent in June.

Business inventories contributed positively to second quarter GDP, the Commerce Department reported last month. The US economy grew at an annual rate of 4 percent between April and June, more than offsetting the disastrous first quarter that witnessed the steepest contraction in GDP since the recession.

Inventories added 1.66 percentage points to GDP last quarter, official data showed.

Analysts are using June data to piece together a more accurate estimate of second quarter growth. A narrower trade deficit in June increased optimism the economy grew at a faster pace in the second quarter. However, data on wholesale inventories released last week showed a slower inventory pile-up in June, which could impact the growth rate.

Wholesale inventories increased just 0.3 percent in June, half the rate of forecasts. Economists say this could shave off as much as half a percentage point from the second quarter GDP estimate.

A revised estimate of second quarter growth, which is based on more complete data, will be released at the end of the month.

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