Wholesale inventories tumble in May

WASHINGTON, July 9 (Reuters) - U.S. wholesale inventories tumbled in May as the COVID-19 pandemic drove imports to near a 10-year low, supporting expectations that the second quarter will see the sharpest contraction in economic growth since the Great Depression.

The Commerce Department said on Thursday that wholesale inventories dropped 1.2% in May as estimated last month. Stocks at wholesalers gained 0.2% in April. The component of wholesale inventories that goes into the calculation of gross domestic product fell 0.7% in May.

Goods imports dropped 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 steepest 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 as much as a 35% pace in the April-June quarter. The government will publish its advance second-quarter GDP estimate later this month.

The decline in inventories in May was broad, with a 5.1% decline in stocks of motor vehicles and parts.

Sales at wholesalers rebounded 5.4% in May after plunging 16.4% in April. At May’s sales pace it would take wholesalers 1.53 months to clear shelves, down from 1.63 months in April. (Reporting by Lucia Mutikani Editing by Chizu Nomiyama)