Business inventories extended a run of modest builds, up 0.3 percent in December matching November's build and following 0.2 percent increases in the prior two months. December's headline masks a 0.7 percent build among retailers that, however, followed three prior months of flat results. Manufacturing inventories rose 0.4 percent in December with wholesale inventories up only 0.1 percent.

Despite the flat results, inventories added substantially to the first estimate of fourth-quarter GDP and will do so again in the second estimate as well. The contribution reflects comparison with contraction in the prior quarter.

Business inventories in December are expected to rise 0.3 percent following a 0.4 percent build in November.

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.

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.