US Wholesale Inventories Rise Slightly, Sales Extend Gains

U.S. wholesale inventories rose marginally in May as automobile stocks tumbled; suggesting inventory investment likely remained a drag on economic growth in the second quarter.

The Commerce Department said on Tuesday that wholesale inventories edged up 0.1 percent. Inventories for April were revised up to show a 0.7 percent gain instead of the previously reported 0.6 percent increase.

Inventories are a key component of gross domestic product changes. The component of wholesale inventories that goes into the calculation of GDP - wholesale stocks excluding autos - increased 0.4 percent in  May.

Higher prices for commodities, including petroleum, largely accounted for the gain in ex-autos wholesale inventories in May.

As such, this will probably not provide a boost to second-quarter GDP growth, when adjusted for inflation.

Inventory investment subtracted just over two-tenths of a percentage point from GDP growth in the first quarter, helping to hold back the rise in output to a 1.1 percent annualized rate. Second-quarter GDP growth estimates are currently around a 2.4 percent rate.

A report last week showed inventories at manufacturers slipped in May. Retail inventory data for May will be published on Friday.

Inventories have weighed on GDP growth since the third quarter of 2015 as businesses sell piles of unwanted merchandise. 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.

In May, wholesale stocks of petroleum increased 3.2 percent after rising 1.4 percent in April. Auto inventories fell 1.9 percent, the biggest decline since September 2013, while farm products inventories soared 5.9 percent.

Wholesalers are making some progress in reducing the inventory glut. Sales at wholesalers increased 0.5 percent in May, adding to the prior month's 0.8 percent gain.

With sales rising for a third straight month, it would take wholesalers 1.35 months to clear shelves, down from 1.36 months in April. Sales were driven by an 5.6 percent surge in petroleum, as well as electrical goods, which rose 2.4 percent.

Credit:CNBC