According to official data released on Monday, wholesalers in the US did not increase their inventory in March.
The Commerce Department said in its second estimate that wholesale inventories were revised downward to reflect that they were unchanged from the previous month. They were expected to expand by 0.1 percent in the prior projection.
The second estimate was expected to continue to rise by a tenth of a percentage point, according to economists’ predictions.
The crucial component of the gross domestic product, inventories, were flat in March for the second month in a row. GDP is dragged down by falling private inventory investment, whereas GDP is increased by rising inventory investment.
Total inventories decreased 9.1% from the previous year’s level.
Private inventory investment decreased in the first quarter of 2023 for the first time in over a year. Contrary to expectations, GDP growth dropped to 1.1 percent.
The way inventories behave throughout business cycles is complicated. After a weak Christmas shopping season, for example, firms may find themselves overstocked and their inventories may decrease. Alternatively, if sales are stronger than anticipated, they may contract. Additionally, companies might reduce inventory in advance of a decline in demand.
The decline in the first quarter of this year was probably brought on by all three. Although it had been worse than anticipated in the fourth quarter of the previous year, consumer spending was greater than anticipated as the year started. At the same time, many companies have reduced their investment in inventories because they anticipate a recession this year.
Leaner inventories, however, may be a positive development for GDP in the coming quarters. Some economists are persuaded by the first quarter’s fall that the inventory liquidation process is mostly complete. Restocking by businesses may have started at this point, which would boost GDP.
The wholesale motor vehicle inventories increased by 2% in February and by 1% in March. Wholesale inventories decreased 0.2 percent in March when vehicles were excluded. The GDP is computed using the ex-autos figure.
Wholesaler sales increased 0.4 in February but fell 2.1 percent in March. The time needed to clear wholesale stocks increased as a consequence, going from 1.37 months to 1.4 months.