Business inventories point to slower growth

Business inventories were slightly below forecasts, rising 0.1% in May. Business sales declined 0.9% in May (but are up 9.1% at an annual rate over the last three months) and the inventory-to-sales ratio remained low at 1.24 (versus 1.23 in April).


The demand-side accounting for GDP for the second quarter appears to be painting a rather more tepid picture of growth than we thought a week ago. These inventory data point to little by way of inventory contribution to growth, while the consumer spending looks to have slowed from its first-quarter pace based on the latest retail sales data. We have to admit that 2½%–3% is now a more central view for second-quarter growth than our previous projection of 3%–3½%. Interestingly, output data suggest greater strength with manufactured output up around 8% at an annual rate in the second quarter (including our estimate for a decline in manufacturing output in June), which is consistent with both low inventory-to-sales ratios and rising global trade. This is also the story with labor input as hours worked in the second quarter posted their largest gain in four years. Nonetheless, demand-side arithmetic tends to win out in forming views about the U.S. economy and the recent data will likely add to concerns that the economy is slowing significantly.


Popular posts from this blog

October retail sales come in strong, especially auto sales

Tea Party Buffalo Pictures

How to spot a fake Tea Partier