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WASHINGTON (Reuters) –     U.S. wholesale inventories increased strongly in August amid a stagnation in sales, a potential sign of an unwanted build-up of goods as higher interest rates dampen demand, which could hurt the economy in the co*ing year.

The co*merce Department said on Friday that wholesale inventories jumped 1.3% as reported last month. Stocks at wholesalers rose 0.6% in July. August’s increase was in line with economists’ expectations.

Economists polled by Reuters had expected August inventories would be unrevised. Wholesale inventories increased 25.0% in August on a year-on-year basis. Inventories are a key part of gross domestic product.

Wholesale motor vehicle inventories accelerated 5.1% after 2.5% in July. Wholesale inventories, excluding autos, increased  0.9% in August. This co*ponent goes into the calculation of GDP and suggested that inventory investment could provide a lift to economic growth in the third quarter.

A sharp slowdown in the pace of inventory accumulation in the second quarter relative to the January-March quarter’s brisk rate weighed on GDP last quarter. The economy contracted at a 0.6% annualized rate in the second quarter after shrinking at a 1.6% pace in the January-March period.

An unwanted accumulation of inventory is bad for the economy as it reduces the incentive for businesses to order more stock, undercutting manufacturing. 

Sales at wholesalers edged up 0.1% in August after falling 1.5% in July. At August’s sales pace it would take wholesalers 1.31 months to clear shelves, up from 1.29 months in July.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)