Inventories are getting a slow start to the first quarter, falling 0.1 percent and extending a flattening trend that does not point to a positive contribution to GDP. Wholesale inventories fell 0.4 percent in January for the first monthly draw since early on in the pandemic while manufacturing inventories were unchanged. Retail inventories did edge 0.2 percent higher.

Business inventories in January are expected to remain unchanged following 0.3 percent builds in both December and 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.