The Economy

Business Inventories Fall, Sales Flat

The decline was greatest at retailers and wholesalers, said the U.S. Commerce Department.
William SprouseJune 14, 2017
Business Inventories Fall, Sales Flat

The U.S. Commerce Department said businesses decreased their inventories by 0.2% on a seasonally adjusted basis in April, the largest such decrease since October 2016. Meanwhile, sales were flat for the month. A slight decline for April had been expected by economists, after inventories gained 0.2% in March while sales contracted 0.1%.

Despite the underwhelming growth figures, manufacturing and trade inventories, at $1,854.2 billion, were still up 2.3% compared with April 2016, and sales of $1,352 billion represented an increase of 5.6% year over year.

The decline in inventories was mostly on the trade side, according to an analysis from Wells Fargo, which noted that retail inventories fell 0.2% while wholesale inventories fell 0.5%. Manufacturers’ inventories increased slightly, by 0.1%.

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The total business inventory-to-sales ratio has remained relatively steady for the past five months and was at 1.37 for April. Wells Fargo economist Tim Quinlan said that suggests that “inventories are roughly keeping pace with slower growing demand.”

The automobile industry, however, is an exception, according to Quinlan. Inventories of motor vehicles and parts businesses have risen in recent months as sales have softened. But auto dealers in particular may be starting to correct for the softening: their inventories fell 0.4% in April.

Quinlan added that overall business inventories will “need to rebound solidly” in May and June to “provide a meaningful boost” to U.S. gross domestic product growth in the second quarter.

Annual GDP growth was 1.2% for the first quarter, as the U.S. economy was hampered by the decrease in inventories, which subtracted from net economic activity. But economists are expecting a better second quarter. On Wednesday, the Atlanta Federal Reserve Bank raised its second-quarter GDP growth view to 3.2%.

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