Business Inventories Climb in May

Wells Fargo Research Team Wells Fargo

Businesses added inventory in May, with the largest increase coming from retailers. Even our modest $22 billion forecast for inventory build in Q2 would boost top-line real GDP growth by 0.5 percentage points.

Business Inventories Bounce Back

Business inventories rose 0.3 percent in May after a 0.2 percent decline in April.
The small increase in inventories in Q1 shaved 1.1 percentage points off of real GDP growth, making the weak first quarter for economic growth look softer than real final sales would suggest. We expect a faster pace of inventory build in Q2 to bolster the headline growth figure released later this month.

I-S Ratio Down, but Less So for Retailers

Amid stronger total sales growth and a slow pace of inventory growth, both the nominal and real inventory-to-sales (I-S) ratios have come down in recent months.
By sector, the inventory story is more divergent. Manufacturers and wholesalers have had more success bringing their I-S ratios down, while the ratio remains more elevated for retailers amid a challenging environment.

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Wells Fargo Research Team

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