U.S. business inventories increase solidly in June

FILE PHOTO: Warehouse workers deal with inventory stacked up to the ceiling at an ABT Electronics Facility in Glenview

WASHINGTON (Reuters) - U.S. business inventories increased strongly in June amid signs of a large buildup of stocks in the retail sector despite a pickup in sales.

Business inventories rose 1.4% after advancing 1.6% in May, the Commerce Department said on Wednesday. Inventories are a key component of gross domestic product. June's increase was in line with economists' expectations.

Inventories increased 18.5% on a year-on-year basis in June.

Retail inventories increased 2.0% in June, as estimated in an advance report published last month. That followed a 1.6% gain in May. Motor vehicle inventories accelerated 3.3% instead of the 3.1% estimated last month. They advanced 2.4% in May.

Retail inventories excluding autos, which go into the calculation of GDP, increased 1.5% instead of 1.6% as estimated last month.

Business inventories increased at a strong clip in the first quarter as consumer spending slowed. The excess inventory, especially at retailers, left businesses with little appetite to continue restocking, which weighed on GDP in the second quarter.

Walmart said on Tuesday it had cleared most of its summer seasonal inventory, but still had work to do in reducing stock of electronics, home goods and apparel.

The economy contracted at a 0.9% annualized rate in the second quarter after shrinking at a 1.6% pace in the January-March period.

Wholesale inventories increased 1.8% in June. Stocks at manufacturers climbed 0.4%.

Business sales rose 1.3% in June after gaining 1.0% in May. At June's sales pace, it would take 1.30 months for businesses to clear shelves, unchanged from May.

(Reporting by Lucia Mutikani; Editing by Paul Simao)