US business inventories unchanged in April

WASHINGTON (Reuters) -U.S. business inventories were unchanged in April amid a decline in stocks at manufacturers, suggesting inventories could be a drag on gross domestic product in the second quarter.

The unchanged inventories reading followed a 0.1% gain in March, the Commerce Department's Census Bureau said on Tuesday. That was in line with economists' expectations. Inventories are a key component of GDP. They increased 2.2% year-on-year.

Inventories are the most volatile component of GDP. They surged at a $163.0 billion annualized rate in the first quarter as businesses stocked up ahead of President Donald Trump's sweeping tariffs on imported goods, adding 2.25 percentage points to GDP, the most since the fourth quarter of 2021.

But the contribution was eclipsed by a record 4.83 percentage points drag from a sharp widening in the trade deficit because of the flood of imports, resulting in GDP declining at a 0.2% rate last quarter - the first contraction in three years.

With the front-running of imports ebbing, the trade gap has narrowed considerably so far in the second quarter, likely positioning GDP for a sharp rebound. Inventories will, however, decide the magnitude of the anticipated surge in GDP.

The Atlanta Federal Reserve is currently estimating the economy growing at a 3.8% pace in the second quarter.

Retail inventories were unchanged instead of dipping 0.1% as estimated in an advance report published last month. They fell 0.3% in March. Motor vehicle inventories decreased 0.8% rather than 0.9% as previously reported. They dropped 1.5% in March.

Retail inventories excluding autos, which go into the calculation of GDP, rose 0.3% as initially reported.

Wholesale inventories gained 0.2% in April, while stocks at manufacturers fell 0.1%.

Business sales dipped 0.1% after increasing 0.6% in March. At April's sales pace, it would take 1.38 months for businesses to clear shelves, unchanged from March.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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