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U.S. business inventories increase for second straight month in August

By Reuters | Posted - Oct. 16, 2020 at 8:45 a.m.


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WASHINGTON (Reuters) - U.S. business inventories increased for a second straight month in August, suggesting restocking could blunt the hit to economic growth in the third quarter from a widening trade deficit.

Business inventories rose 0.3% in August after edging up 0.1% in July, the Commerce Department said on Friday. Inventories, a key component of gross domestic product, increased in July after six straight monthly declines.

Economists polled by Reuters had forecast business stocks rising 0.4% in August.

Retail inventories increased 0.4% in August instead of 0.8% as estimated in an advance report published last month. That followed a 1.2% rebound in July. Motor vehicle inventories rose 0.3% rather than 0.6% as previously reported. Retail inventories excluding autos, which go into the calculation of GDP, increased 0.5% instead of 0.9% as estimated last month.

An inventory drawdown contributed to GDP declining at a record 31.4% annualized rate in the second quarter. Inventories subtracted 3.5 percentage points from GDP, the most since the first quarter of 1988. They have been a drag on GDP for five straight quarters. The economy fell into recession in February.

Businesses are rebuilding inventories with imports, which led to the goods trade deficit surging to a record high in August. With most of the imports going to replenish inventories, the wider goods trade deficit will likely make a small dent in GDP growth in the third quarter. Trade contributed to GDP growth in the last three quarters.

Wholesale inventories rose 0.4% in August. Stocks at manufacturers were unchanged.

Business sales increased 0.6% in August after surging 3.4% in July. At August's sales pace, it would take 1.32 months for businesses to clear shelves, down from 1.33 months in July.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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