Strong U.S. inventories signal upward revision to second-quarter growth

WASHINGTON (Reuters) - U.S. business inventories in June posted their largest gain in 2-1/2 years as sales rose marginally, the latest sign that second-quarter economic growth could be revised higher.

The Commerce Department said on Thursday that business inventories increased 0.8 percent, the biggest gain since January 2013, after an unrevised 0.3 percent rise in May.

Economists polled by Reuters had forecast inventories rising only 0.3 percent in June. Inventories are a key component of gross domestic product.

Retail inventories excluding autos, which go into the calculation of GDP, jumped 0.7 percent in June, the largest rise since November 2013. May's retail inventories excluding autos were revised up to show a 0.3 percent increase instead of a 0.1 percent gain.

June's rise in retail sales excluding automobiles was larger than the government had estimated in its advance second-quarter GDP report published last month. In that report, the government said inventories made no contribution to the second-quarter GDP annualized growth pace of 2.3 percent.

But the solid increase in the June data and upward revisions to the May data suggest inventories contributed to GDP growth in the last quarter. June factory inventories were stronger than the government had estimated in the advance GDP report.

The factory data, together with a modest rise in imports in June and upward revisions to the May construction spending number had already left economists expecting that second-quarter GDP growth could be revised to at least a 3 percent rate.

The government will publish its second GDP estimate for the quarter later this month.

In June, business sales rose 0.2 percent after increasing 0.4 percent in May. At June's sales pace, it would take 1.37 months for businesses to clear shelves - a relatively high ratio that suggests limited scope for businesses to aggressively accumulate stocks. The ratio was up from 1.36 months in May.

(This version of the story corrects historical gain in first paragraph to 2-1/2 years from 1-1/2 years)

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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