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Business inventories for July 2016 reported by the Census Bureau

U.S. inventories were unchanged as stocks at retailers fell, suggesting an anticipated boost from inventory investment to third-quarter economic growth could be modest.

The Commerce Department said on Thursday the flat reading in inventories followed an unrevised 0.2 percent increase in June.

Economists had forecast inventories, a key component of gross domestic product, edging up 0.1 percent in July.

Retail inventories fell 0.3 percent in July, instead of decreasing 0.4 percent as reported in an advance report published last month. They rose 0.4 percent in June.

Retail inventories excluding autos, which go into the calculation of GDP, also fell 0.3 percent in July after rising 0.2 percent in June.

An outright drop in inventory investment subtracted almost 1.3 percentage points from GDP growth in the second quarter, the largest drag in more than two years, restricting the rise in output to an anemic 1.1 percent pace.

Economists expect inventory accumulation will rebound in the third quarter and account for much of the anticipated acceleration in GDP growth. The Atlanta Federal Reserve is currently forecasting the economy growing at a 3.3 percent rate in the third quarter.

Inventories have weighed on GDP growth since the second quarter of 2015 as businesses sold stockpiles of unwanted goods, helping to undercut manufacturing activity.

Business sales fell 0.2 percent in July, the biggest drop since February, after rising 1.0 percent June. At July's sales pace, it would take 1.39 months for businesses to clear shelves, unchanged from June.

That is still a high ratio that poses a risk that the inventory correction could extend into the third quarter.

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