US Business Inventory Levels Were Up in June—Why That Matters

Retailers and wholesalers raised their product stockpiles in June, as they attempted to keep up with surprisingly resilient demand amid economic uncertainties.

Retailers grew their inventories by 0.7% when compared with the prior month, while wholesale inventories rose 0.2%, according to new data from the Census Bureau Wednesday. Retail inventories grew faster than in May, while wholesale increases slowed.

Businesses often let inventory stockpiles grow when they anticipate consumer spending or some kind of interruption to their supply chains. Growing inventories in June could be a hedge for trade uncertainty during the election cycle and a play to shore up products amid continued strong consumer spending, economists said.

Economists Update GDP Growth Estimates

Inventory levels can be volatile and difficult to predict but increasing stockpiles can help boost the country’s economic growth, so economists are evaluating Wednesday’s report to inform their prediction for Thursday’s report on second-quarter gross domestic product.

“For inventories to be a positive contributor to economic growth, they must accumulate more in the current period than in the previous one,” wrote Moody’s Analytics’s Economist Justin Begley. “The latest update to our second-quarter high-frequency GDP estimate shows inventories weighing slightly on economic growth, but less so than in the prior two quarters.

Growth in retail inventories was mostly concentrated in motor vehicles and their parts, while wholesalers let their stockpiles grow in durable goods like machinery and equipment.

Several economists updated their estimates for GDP on the report, including Jan Hatzius at Goldman Sachs, who noted greater inventory accumulation than expected led to a higher estimation for the economic growth report.

The median forecast for second quarter GDP growth from economists surveyed by the Wall Street Journal and Dow Jones Newswires moved up to 2.1% from 1.9% on Friday.