U.S. business inventories increase, but pace slowing

WASHINGTON (Reuters) - U.S. business inventories increased in July, but the pace has slowed considerably from prior months, likely as cooling demand amid higher interest rates forces companies to be cautious.

Business inventories increased 0.6% after rising 1.4% in June, the Commerce Department said on Thursday. Inventories are a key component of gross domestic product. July's increase was in line with economists' expectations.

Inventories increased 18.4% on a year-on-year basis in July.

Retail inventories increased 1.2% in July, instead of 1.1% as estimated in an advance report published last month. That followed a 2.0% increase in June.

Motor vehicle inventories raced 3.5% as estimated last month. They climbed 3.3% in June.

Retail inventories excluding autos, which go into the calculation of GDP, increased 0.4% as estimated last month.

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.

Wholesale inventories increased 0.6% in July. Stocks at manufacturers gained 0.1%.

Business sales dropped 0.9% in July after rising 1.2% in June. At July's sales pace, it would take 1.32 months for businesses to clear shelves, up from 1.30 in June.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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