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U.S. wholesale inventories surge in May as businesses rush to keep up with strong sales

Inventories at U.S. wholesalers rose a sharp 1.3% in May as businesses rushed to keep up with a flood of demand for their goods and services.

The recovering economy has spurred customers to snap up cars, appliances electronics and many other goods. They are also taking vacations again and going out to eat more.

Wholesale sales rose 0.8% in May and they are up a whopping 37% over the past year.

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Most companies have struggled to boost production as much as they would like, however, due to shortages of supplies and labor. These conditions are expected to ease as the economy returns to normal, but the problems could last awhile.

Read: Job openings hit record 9.2 million, but workers aren’t easy to find

Inventories of durable goods such as computers, furniture and lumber increased by 1.2%, the government said Friday.

Stockpiles of nondurable goods — groceries, chemicals, paper and so forth — jumped 1.5%.

The inventory-to-sales ratio in May edged up to 1.23 from a seven-year low of 1.22 in the prior month.

Read: There’s plenty of jobs, but not enough people to fill them. How come?

In other words, companies have 1.23 products in stock for every item they sell.

The ratio tends to decline when sales are strong and the economy is healthy, but if it gets too low, it suggest bottlenecks or other problems with production that could hold the economy back.

While companies are facing lots of constraints, they are trying to ramp up production so they don’t lose out on any sales.

Read:Fed admits inflation rose much higher than expected, but it still insists price increases are temporary

The increase in inventories can also give a big lift to gross domestic product, the official scorecard for the U.S. economy. GDP likely expanded by a frothy 8.2% in the second quarter, economists polled by The Wall Street Journal estimate.

The GDP report comes out on July 29.

Stocks soared in Friday trades, but mostly because of the usual rebound that follows a decline like the one that occurred on Thursday. The Dow Jones Industrial Average
DJIA,
+1.30%

climbed more than 400 points and the S&P 500
SPX,
+1.13%

was also up big.

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