Business inventories barely rise, suggest first quarter GDP contraction

WASHINGTON, (Reuters) – U.S. business inventories barely rose in March as sales recorded their biggest gain in eight months, the latest indication that the economy actually contracted in the first quarter.

The Commerce Department said on Wednesday business inventories edged up 0.1 percent after a downwardly revised 0.2 percent gain in February.

Economists polled by Reuters had forecast inventories rising 0.2 percent in March after a previously reported 0.3 percent increase in February.

Inventories are a key component of gross domestic product.

Retail inventories excluding autos, which go into the calculation of GDP, ticked up 0.1 percent in March. That was well below the 0.8 percent gain the government assumed in its advance estimate of first-quarter growth published last month.

That was the latest suggestion that first-quarter GDP growth could be revised down from the scant 0.2 percent annual pace reported in April to show a contraction. Trade, wholesale and manufacturing inventory data published last week also came in weaker than the government’s assumptions in the GDP snapshot.

The government estimated that inventories added 0.74 percentage point to GDP growth in the first quarter. The economy was weighed down by a mix of bad weather, disruptions at ports, a strong dollar and deep spending cuts by energy firms.

Retail inventories, excluding autos, rose 0.5 percent in February.

In March, business sales increased 0.4 percent, the largest rise since last July, after falling 0.2 percent in February.

At March’s sales pace, it would take 1.36 months for businesses to clear shelves – a relatively high ratio that suggests limited scope for businesses to aggressively accumulate stocks. The ratio was down from 1.37 months in February.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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