WASHINGTON, (Reuters) - U.S. business inventories were unexpectedly flat in August as stocks at retailers were weaker than initially thought, suggesting inventory investment could remain a drag on economic growth in the third quarter.
The Commerce Department said on Wednesday the unchanged reading in business inventories followed a 0.3% gain in July. Inventories are a key component of gross domestic product. Economists polled by Reuters had forecast inventories would rise 0.2% in August.
Retail inventories dipped 0.1% in August instead of being unchanged as estimated in an advance report published last month. That followed a 0.7% increase in July.
Motor vehicle inventories dropped 0.1% in August, rather than edging up 0.1% as previously reported. Retail inventories excluding autos, which go into the calculation of GDP, declined 0.2%, instead of being unchanged as reported last month.
The pace of inventory accumulation has been slowing after stocks surged from the third quarter of 2018 through the first quarter of this year. The inventory overhang has led to businesses placing fewer orders at factories, contributing to a downturn in manufacturing activity.
The slowdown in inventory accumulation in the second quarter helped to restrict economic growth to a 2.0% annualized rate during the period. Some of the moderation in the pace of accumulation reflects an acceleration in consumer spending in the second quarter.
Businesses are also carefully managing stock levels as the economy’s outlook has dimmed against the backdrop of trade tensions between the United States and China, as well as slowing growth overseas. Economists say a truce in the U.S.-China trade war announced by President Donald Trump on Friday was unlikely to reverse the economy’s fortunes, as it left the tariffs that have already been imposed in place.
The economy grew at a 3.1% pace in the first quarter. Growth estimates for the third quarter range from as low as a 1.3% annualized rate to as high as a 2.0% pace.
Wholesale inventories rose 0.2% in August, while stocks at manufacturers were unchanged.
Business sales increased 0.2% in August after the same gain in the prior month. At August’s sales pace, it would take 1.40 months for businesses to clear shelves, unchanged from July.
Motor vehicle sales surged 1.9% in August after edging up 0.1% in July. The auto inventory-to-sales ratio fell to 2.31 months from 2.36 months in July.
Reporting by Lucia Mutikani Editing by Paul Simao