U.S. Economic Growth in Second Quarter Boosted as Wholesale Inventories Increase

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U.S. Economic Growth in Second Quarter Boosted as Wholesale Inventories IncreaseU.S. wholesale inventories increased more than the market had expected in April, fuelling optimism that the economy may grow faster in the second quarter.

Wholesale inventories rose by 1.1 percent in April, reported the Commerce Department on Tuesday. This matched the growth rate posted in March, and exceeded analysts’ estimates of an expansion of 0.5 percent in a Reuters survey.

The wholesale stocks minus autos component, which is used in computing the GDP, rose 1.1 percent. Stocks in April grew mainly due to the 2.8 percent growth in inventories of electrical goods, the biggest growth since February 2004. Metal inventories also grew the most since June 2011.

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Economic growth in the first quarter took a hit from the slow pace at which business restocked their inventories, though the inventory numbers are expected to increase in the second quarter. Looking at the data, it took 1.8 months to clear inventories in April, the same as in March.

A report released last week showed that manufacturing stocks rose in April, with further increase expected after a sharp spike in vehicle sales in May saw stocks of certain automobile models run out.

The U.S. gross domestic product shrunk by 1.0 percent in the first quarter after the decline in inventories shaved 1.6 percentage points off the GDP. Economists forecast the economy to grow by at least 3 percent in the second quarter, though the favorable inventory data may spur some of them to revise their GDP estimates upwards.

Wholesalers saw sales increase 1.3 percent in April after earlier surging 1.6 percent in March, mostly due to increased sales of electrical goods, autos, machinery and furniture. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com