US: Business Inventories

Wed Mar 14 09:00:00 CDT 2018

Consensus Consensus Range Actual Previous Revised
Inventories - M/M change 0.5% 0.3% to 0.6% 0.6% 0.4% 0.6%

Inventory growth proved strong in January, up 0.6 percent led by a 0.8 percent gain for wholesalers and a 0.7 percent build for retailers and including a 0.3 percent inventory rise at manufacturers. Builds in February and March, however, are not certain given a decline in total sales which fell 0.2 percent and which does not point to the need for restocking.

Market Consensus Before Announcement
A sizable build of 0.5 percent is expected for January business inventories, an increase that would give an early boost to the inventory component of first-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.