U.S. business inventories rebound; sales fall

WASHINGTON (Reuters) - U.S. business inventories rebounded in April as sales fell, but inventory accumulation is still expected to be a drag on economic growth in the second quarter.

The Commerce Department said on Friday that business inventories increased 0.5% after being unchanged in March.

Inventories are a key component of gross domestic product. April's reading was in line with economists' expectations.

Retail inventories increased 0.5% as estimated in an advance report published last month. Motor vehicle inventories surged 0.8% in April instead of advancing 0.6% as previously reported.

Retail inventories excluding autos, which go into the calculation of GDP, gained 0.4% as reported in May, suggesting inventory accumulation could subtract from GDP growth in the second quarter.

The government reported last month that inventory investment added 0.60 percentage point to the economy's 3.1% annualized growth rate in the first quarter. Much of the accumulation in inventories reflects tepid domestic demand in the first quarter.

A trade war between the United States and China has also contributed to the inventory glut as businesses stocked up in a bid to get ahead of the tariff fight.

Wholesale inventories jumped 0.8% in April. Stocks at manufacturers rose 0.3%. The manufacturing inventory glut, which is concentrated in the auto industry, is contributing to sluggish growth in production at factories.

Business sales fell 0.2% in April after accelerating 1.3% in the prior month. At April's sales pace, it would take 1.39 months for businesses to clear shelves, up from 1.38 months in March. The motor vehicle inventory-to-sales ratio increased to 2.32 months in April from 2.29 months in March.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci) (([email protected]; 1 202 898 8315; Reuters Messaging: [email protected]))

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