U.S. business inventories increase strongly in May

WASHINGTON (Reuters) - U.S. business inventories increased strongly in May, outpacing the growth in sales, government data showed on Friday.

Business inventories rose 1.4% after climbing 1.3% in April, the Commerce Department said. Inventories are a key component of gross domestic product. Economists polled by Reuters had forecast inventories would rise 1.3%.

Inventories advanced 17.7% on a year-on-year basis in May.

Retail inventories increased 1.1% in May, as estimated in an advance report published last month. That followed a 0.8% rise in April. Motor vehicle inventories rebounded 2.2% instead of the 2.3% gain estimated last month. They fell 2.2% in April.

Retail inventories excluding autos, which go into the calculation of GDP, gained 0.8% as estimated last month.

Business inventories increased at a strong clip in the first quarter as consumer spending slowed. The excess inventory means businesses have little appetite to continue restocking, which could weigh on GDP in the second quarter.

Major U.S. retailers, including Walmart and Target have said they were carrying too much merchandise.

Second-quarter GDP estimates range from as low as a 1.7% annualized rate of decline to as high as a 1.0% pace of growth. The economy contracted at a 1.6% rate in the first quarter because of a record trade deficit.

Wholesale inventories increased 1.8% in May. Stocks at manufacturers rose 1.3%.

Business sales increased 0.7% in May after climbing 0.6% in April. At May's sales pace, it would take 1.30 months for businesses to clear shelves, up from 1.29 months in April.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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