Unchanged in July, business inventories get third-quarter GDP inventories off to a flat nominal start. Inventories were flat across components: up 0.1 percent for manufacturers, up 0.2 percent for retailers, and down 0.2 percent for wholesalers. But inventories relative to sales for this series, which rose 0.6 percent in July, do point to the need for more stocks, which might prove a plus for inventory contribution through the quarter.

Business inventories in July are expected to edge 0.1 percent higher following no change in both June and May.

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.