US business inventories fall for first time in nearly two years

US business inventories fell for the first time in nearly two years in January, potentially setting up inventory investment to be a drag on economic growth in the first quarter.

Business inventories dropped 0.1 per cent, the Commerce Department said on Wednesday (Mar 15). That was the first decline and also the weakest reading since April 2021 and followed a 0.3 per cent gain in December. Economists polled by Reuters had expected inventories, a key component of gross domestic product, would be unchanged.

Inventories increased 11.1 per cent on a year-on-year basis in January. Inventory accumulation surged in the fourth quarter, mostly reflecting an unwanted piling up of goods, as growth in consumer spending decelerated because of higher interest rates.

Retail inventories increased 0.2 per cent instead of 0.3 per cent as estimated in an advance report published last month. They rose 0.4 per cent in December.

Motor vehicle inventories advanced 0.6 per cent as estimated last month. They increased 1.4 per cent in December. Retail inventories excluding autos, which go into the calculation of GDP, gained 0.1 per cent instead of the 0.2 per cent rise estimated last month.

Inventories accounted for half of the 2.7 per cent annualised growth rate in GDP last quarter. Analysts say a liquidation of these unsold goods could contribute to tipping the economy into an anticipated recession this year.

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Wholesale inventories fell 0.4 per cent in January. Stocks at manufacturers were unchanged.

Business sales rebounded 1.5 per cent in January after falling 0.6 per cent in December. At January’s sales pace, it would take 1.34 months for businesses to clear shelves, down from 1.36 months in December. REUTERS