US: Steady inventory growth makes for dull changes - Wells Fargo

With just a month of data, it’s too early to make big conclusions about the role of inventories in Q1 GDP, but the 0.6 percent increase in January business inventories works with Wells Fargo analysts call for a slight inventory boost.

Key Quotes: 

“Business inventories added another 0.6 percent in January. Stockpiles increased every month but one last year. The initially reported increase of 0.4 percent for December inventories was revised slightly higher to 0.6 percent.”

“Since the contribution to GDP is derived from the quarterly change in inventory investment, a steady build translates into small changes like the $8 billion increase in Q4."

“It is normal for inventories to rise during an economic expansion, but to gauge the extent to which the stockpiling is intended, it is useful to look at inventories relative to sales. On this basis, we find that from manufacturing to the wholesale and retail level, the inventory building by businesses is mostly intended. That said, we will be watching the pick-up in these ratios on the wholesale and retail level after retail sales slipped again in February.”