US retail inventories excluding autos rise in October

WASHINGTON: US retail inventories excluding automobiles rose in October, suggesting inventories could be less of a drag on fourth-quarter growth than previously thought. Inventories are a key component of gross domestic product.

Retail inventories excluding autos, which go into the calculation of GDP, increased 0.4 percent in October after an unrevised 0.5 percent gain in September, the Commerce Department said on Friday.

Overall business inventories were unchanged in October after ticking up 0.1 percent the prior month. Economists polled by Reuters had forecast inventories edging up 0.1 percent in October after a previously reported 0.3 percent increase in September.

October’s increase in retail inventories excluding autos could see economists raise their fourth-quarter GDP growth estimates, currently around a 1.9 percent annual pace. A record back-to-back increase in inventories in the first two quarters of this year left warehouses bulging with unsold merchandise and businesses with little appetite to restock.

Inventories subtracted 0.56 percentage point from GDP in the third quarter, holding the economy to a 2.1 percent growth pace. However, data earlier this month showed downward revisions to September manufacturing and wholesale inventories, suggesting the third-quarter GDP growth estimate could be lowered when the government publishes its second revision later this month.

A report on Thursday also showed less spending on services and software than the government had assumed in its second estimate for third-quarter GDP. In October, business sales fell 0.2 percent after being flat in September.

At October’s sales pace, it would take 1.38 months for businesses to clear shelves, up from 1.37 months in September. That was the highest ratio since June 2009 and suggested that the so-called inventory correction could persist beyond the fourth quarter.

Producer prices increase: US producer prices unexpectedly rose in November as the cost of services increased, but the underlying trend continued to point to weak inflation pressures.

The Labor Department said on Friday its producer price index advanced 0.3 percent after falling 0.4 percent in October. In the 12 months through November, the PPI declined 1.1 percent after sliding 1.6 percent in October. November marked the 10th straight 12-month decrease in the index. Economists had forecast the PPI unchanged last month and sliding 1.4 percent from a year ago.

Dollar strength and continued declines in oil prices amid a glut and slowing global growth have dampened price pressures, leaving inflation running persistently below the Federal Reserve’s 2 percent target. But given a tightening labor market, economists expect the US central bank to raise its short-term interest rate next Wednesday for the first time in nearly a decade.

Producer inflation is likely to remain weak after a report on Thursday showed import prices fell in November for the ninth time this year. In November, services increased 0.5 percent after falling 0.3 percent the prior month. Nearly 80 percent of the increase was attributed to margins received by wholesalers and retailers, which jumped 1.2 percent. Within services, more than 40 percent of the increase was due to a 6.2 percent increase in margins for apparel, jewelry, footwear, and accessories retailing.

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