WASHINGTON (Reuters) – U.S. wholesale inventories increased strongly in August amid a stagnation in sales, a potential sign of an unwanted build-up of goods as higher interest rates dampen demand, which could hurt the economy in the coming year.
The Commerce Department said on Friday that wholesale inventories jumped 1.3% as reported last month. Stocks at wholesalers rose 0.6% in July. August’s increase was in line with economists’ expectations.
Economists polled by Reuters had expected August inventories would be unrevised. Wholesale inventories increased 25.0% in August on a year-on-year basis. Inventories are a key part of gross domestic product.
Wholesale motor vehicle inventories accelerated 5.1% after 2.5% in July. Wholesale inventories, excluding autos, increased 0.9% in August. This component goes into the calculation of GDP and suggested that inventory investment could provide a lift to economic growth in the third quarter.
A sharp slowdown in the pace of inventory accumulation in the second quarter relative to the January-March quarter’s brisk rate weighed on GDP last quarter. The economy contracted at a 0.6% annualized rate in the second quarter after shrinking at a 1.6% pace in the January-March period.
An unwanted accumulation of inventory is bad for the economy as it reduces the incentive for businesses to order more stock, undercutting manufacturing.
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Sales at wholesalers edged up 0.1% in August after falling 1.5% in July. At August’s sales pace it would take wholesalers 1.31 months to clear shelves, up from 1.29 months in July.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)