U.S. business inventories post record drop in May

WASHINGTON (Reuters) - U.S. business inventories fell by the most on record in May amid the COVID-19 crisis, supporting expectations for the sharpest drop in gross domestic product in the second quarter since the Great Depression.

The Commerce Department said on Thursday business inventories declined 2.3% in May, the biggest decline since the government started tracking the series in 1992, after falling 1.4% in April. Inventories, a key component of GDP, have now declined for five straight months.

May’s plunge in business stocks was in line with economists’ expectations.

Retail inventories plummeted 6.2% in May, instead of 6.1 as estimated in an advance report published last month. That followed a 3.8% drop in April. Motor vehicle inventories tumbled 14.9% rather than 15% as previously reported. Retail inventories excluding autos, which go into the calculation of GDP, fell 1.6% instead of 1.5% as reported last month.

Goods imports decreased in May to their lowest level since July 2010 as the coronavirus crisis suppressed demand and upended global trade. Imports have also been curbed by the White House’s trade war with China. Though the shrinking import bill is a positive in the calculation of GDP, it has been overshadowed by an even bigger decline in exports.

That has led a widening of the trade deficit, which together with the continued inventory drawdown are expected to contribute to the deepest decline in GDP on record. The economy contracted at a 5.0% annualized rate in the first quarter, the sharpest pace of decline in GDP since the 2007-2009 Great Recession.

The economy fell into recession is February. Economists expect GDP shrank at a pace as sharp as 35% in the April-June quarter. The government will publish its advance second-quarter GDP estimate at the end of the month.

Wholesale inventories fell 1.2% in May. Stocks at manufacturers rose 0.2%. Business sales rebounded 8.4% in May after tumbling 14.4% in the prior month. At May’s sales pace, it would take 1.51 months for businesses to clear shelves, down from 1.67 months in April.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama