January 16, 2020 / 6:34 PM / a month ago

U.S. business inventories post biggest drop in 2-1/2 years

WASHINGTON, Jan 16 (Reuters) - U.S. business inventories fell by the most in more than 2-1/2 years in November as sales rebounded, suggesting inventory investment could be a drag on economic growth in the fourth quarter.

The Commerce Department said on Thursday that business inventories dropped 0.2%, the biggest decline since April 2017, after edging up 0.1% in October. Inventories are a key component of gross domestic product.

Economists polled by Reuters had forecast inventories would fall 0.1% in November.

Retail inventories decreased 0.8% in November, the most since September 2017, instead of dropping 0.7% as estimated in an advance report published last month. That followed a 0.1% gain in October.

Motor vehicle inventories tumbled 1.8% in November, the biggest drop since September 2017, rather than tumbling 1.6% as previously reported. Retail inventories excluding autos, which go into the calculation of GDP, fell 0.2% as reported last month. That was the largest decline since August.

The pace of inventory accumulation accelerated from the third quarter of 2018 through the first quarter of 2019, before shifting lower in the second and third quarters.

Inventory investment had a neutral effect on GDP growth in the third quarter. The economy grew at a 2.1% annualized rate in the July-September period. Slow inventory accumulation is expected to offset some of the anticipated boost to fourth-quarter GDP growth from a shrinking trade deficit.

Growth estimates for the fourth quarter are as high as a 2.5% rate.

Wholesale inventories fell 0.1% in November, while stocks at manufacturers increased 0.3%.

Business sales rebounded 0.7% in November, the most since March, after falling 0.2% in the prior month. Auto sales increased 1.5% after rising 1.1% in October.

At November’s sales pace, it would take 1.39 months for businesses to clear shelves, down from 1.40 in October. The auto inventory-to-sales ratio dropped to 2.22 months in November from 2.30 months in October.

Reporting by Lucia Mutikani Editing by Paul Simao Lucia.Mutikani@thomsonreuters.com; 1 202 898 8315; Reuters Messaging: lucia.mutikani.thomsonreuters.com@reuters.net

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