US: Business Inventories

Fri Sep 15 09:00:00 CDT 2017

Consensus Consensus Range Actual Previous
Inventories - M/M change 0.2% 0.1% to 0.3% 0.2% 0.5%

Business inventories rose 0.2 percent in July as was expected with a 0.6 percent build for wholesalers and a 0.2 percent build for manufacturers offsetting a 0.1 percent draw for retailers. Relative to business sales, which also rose 0.2 percent in the month, the inventory-to-sales ratio is unchanged at a lean 1.38. Inventory levels were well balanced going into the hurricane dislocations of August and September.

Market Consensus Before Announcement
Business inventories have been climbing in line with expectations for future sales but nevertheless ahead of current sales. Another build is expected for July but only a moderate one with the consensus at a 0.2 percent increase. Inventories were neutral in second-quarter GDP and a big build in July could further lift expectations for third-quarter GDP.

Business inventories are the dollar amount of inventories held by manufacturers, wholesalers, and retailers. The level of inventories in relation to sales is an important indicator of the near-term direction of production activity. (Bureau of the Census)

Investors need to monitor the economy closely because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more moderate growth that won't generate inflationary pressures.

Rising inventories can be an indication of business optimism that sales will be growing in the coming months. By looking at the ratio of inventories to sales, investors can see whether production demands will expand or contract in the near future. For example, if inventory growth lags sales growth, then manufacturers will have to boost production lest commodity shortages occur. On the other hand, if unintended inventory accumulation occurs (that is, sales do not meet expectations), then production will probably have to slow while those inventories are worked down. In this manner, the business inventory data provide a valuable forward-looking tool for tracking the economy.