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U.S. Markets

U.S. business inventories fall in April; sales rise

FILE PHOTO: Warehouse workers deal with inventory stacked up to the ceiling at an ABT Electronics Facility in Glenview, Illinois, U.S. December 4, 2018. Picture taken December 4, 2018. REUTERS/Richa Naidu

WASHINGTON (Reuters) - U.S. business inventories fell in April, with stocks declining at a sharper pace than initially estimated amid shortages of raw materials, which are undercutting production of motor vehicles and other goods.

Business inventories decreased 0.2% after increasing 0.2% in March, the Commerce Department said on Tuesday. Inventories are a key component of gross domestic product. Economists polled by Reuters had forecast inventories dipping 0.1%.

Inventories dropped 3.6% on a year-on-year basis in April.

Retail inventories decreased 1.8% in April, rather than 1.6% as estimated in an advance report published last month. That followed a 1.4% decrease in March. Motor vehicle inventories dropped 7.5% rather than 7.0% as estimated in an advance report published last month. Motor vehicle stocks are being run down as a global semiconductor shortage weighs on auto production.

Retail inventories excluding autos, which go into the calculation of GDP, increased 0.6% instead of 0.5% as estimated last month.

Manufacturers are battling shortages of raw materials and labor in the wake of pent-up demand unleashed by the reopening of the economy as vaccinations ease COVID-19’s intensity.

With demand robust, inventories were depleted in the first quarter. The inventory drawdown subtracted nearly three percentage points from GDP growth last quarter. Still, the economy grew at a strong 6.4% annualized rate after expanding at a 4.3% pace in the fourth quarter. Most economists are forecasting double-digit GDP growth in the second quarter.

Wholesale inventories increased 0.8% in April. Stocks at manufacturers rose 0.3%.

Business sales advanced 0.6% in April after rebounding 5.8% in March. At April’s sales pace, it would take 1.25 months for businesses to clear shelves, down from 1.26 months in March.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama

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