In January, US business inventories rose strongly, although the pace slowed from previous months, which may mean that inventory investment may not contribute to economic growth in the first quarter.
Business inventories rose 1.1% after advancing 2.4% in December, the Commerce Department reported. Inventories are a key component of the Gross Domestic Product (GDP).
The increase at the beginning of the year was in line with economists’ expectations. Inventories grew 11.4% annually.
Motor vehicle inventories increased 2.4%, as estimated. In December they accelerated 6.9 percent. Retail trade inventories excluding automobiles, which go into the GDP calculation, advanced 1.8%, instead of the estimated 1.7%.
Inventory investment rose at a strong seasonally adjusted annualized rate of $171.2 billion in the fourth quarter, contributing 4.90 percentage points to the quarter’s 7% growth pace.
Most economists see more scope for inventories to grow, noting that inflation-adjusted inventories remain below their pre-pandemic level. The relationship between sales and inventories is also at a low level.
But inventories are likely to be neutral to GDP growth this quarter, as they would need to rise at a similar pace as in the fourth quarter of 2021 to contribute to growth.
Wholesale inventories increased 0.8% in January. Manufacturers’ inventories grew 0.7 percent.
On the other hand, retail sales made moderate progress in February, after a strong rebound in January, due to inflation, which erodes the purchasing power of consumers.
Total retail sales reached $658.1 billion last month, up 0.3% from January.