Business Inventories higher than forecast

Business inventories were higher than forecasts, rising 1.0% in July. Business sales increased 0.7% in July and the inventory-to-sales ratio remained low at 1.26.

BOTTOM LINE

Inventories are always a half of the story news.  Inventories can pick up either because of lackluster sales or because they expect to increase sales.  Alone they don't tell the full story.  In this case, iventory investment picked up in July from the pace recorded in the second quarter, partly due to petroleum and auto inventories.

These are two areas of inventories from this report that are often excluded when considering the impact of inventory investment on real GDP because petroleum trends can be substantially influenced by oil prices and the Commerce Department obtains auto inventory data from industry sources rather than from this report. However, with oil prices up only modestly in July and industry data also showing auto inventories picking up, it appears that inventories have started the third quarter on track to add fairly significantly to real GDP growth. Nonetheless, despite the further pickup in inventory investment, inventories remain well contained in relation to sales.

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