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Article updated: 7/10/2013 9:36 AM

Wholesale inventories unexpectedly drop as u.S. Sales surge

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Inventories at U.S. wholesalers unexpectedly declined in May by the most since September 2011 as sales surged, pointing to a pickup in orders and production.

The 0.5 percent decrease in stockpiles followed a 0.1 percent drop in April that was initially reported as a gain, the Commerce Department said today in Washington. The median forecast in a Bloomberg survey called for a 0.3 percent increase. Sales jumped 1.6 percent, the most since November.

At the current sales pace, wholesalers had enough goods on hand to last 1.18 months, the fewest since April 2012, the report showed. Lean inventories, which may contribute less to second-quarter growth, suggest companies will boost orders to factories to keep pace with growing demand.

"With the drawdown in inventories, if the pace of sales is maintained, we'll see a pickup in production," said Millan Mulraine, director of U.S. rates research at TD Securities USA LLC in New York. The sales figures show "we're ending the second quarter on fairly strong footing."

Mulraine said he expects demand to be sustained as the effect of a higher payroll tax abates, consumer confidence improves and the labor market strengthens.

Estimates of the 30 economists in the Bloomberg survey for May wholesale inventories ranged from no change to a 0.9 percent increase after a previously reported 0.2 percent gain in April.

Wholesalers' stockpiles of durable goods, or those meant to last several years, fell 0.3 percent, the biggest decrease since December 2009. Sales of durables climbed 0.3 percent. Purchases of automobiles jumped 3 percent, the most in more than a year, while inventories were little changed.

The value of unsold non-durable goods slumped 0.8 percent as purchases increased 2.8 percent, the most since March 2011.

--With assistance from Alex Tanzi in Washington. Editor: Vince Golle

To contact the reporter on this story: Jeanna Smialek in Washington at jsmialek1bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwelliszbloomberg.net

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