US: Business Inventories

Fri Oct 13 09:00:00 CDT 2017

Consensus Consensus Range Actual Previous Revised
Inventories - M/M change 0.7% 0.3% to 0.7% 0.7% 0.2% 0.3%

Business inventories rose 0.7 percent as expected in August, matching the 0.7 percent rise in business sales and keeping the inventory-to-sales ratio at a steady and lean 1.38 for the 3rd month in a row. Wholesalers showed the largest build in the month, at 0.9 percent, followed by retailers at 0.7 percent and manufacturers at 0.4 percent. This is a balanced and very favorable report, indicating that inventory growth, which is a positive for GDP, is rising strongly and in line with underlying demand.

Market Consensus Before Announcement
Business inventories climbed in advance data as companies tried to keep up with rising sales during August. After a modest 0.2 percent July build, business inventories are expected to rise by 0.7 percent in August led by unusual strength at the wholesale level.

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.