A big rise in U.S. wholesale inventories in March is likely to temper an expected downward revision to the government’s estimate of first-quarter economic growth, but fall short of keeping it from being pushed into negative territory.
The Commerce Department said on Friday that wholesale inventories increased 1.1 per cent after an upwardly revised gain of 0.7 per cent in February.
Economists, who had expected wholesale stocks to rise 0.5 per cent, said the increase in March was larger than the government had assumed in its advance gross domestic product estimate published last week.
The GDP report suggested the economy grew at a 0.1 per cent annual pace in the first three months of the year, but data released since then on trade, construction spending and factory inventories has led economists to expect an update on GDP later this month to show a contraction.
“This may boost the inventory reading for the first quarter and temper the extent of a negative GDP in the first quarter,” Anthony Karydakis, chief economic strategist with Miller Tabak in New York, said of the wholesale inventory data.
Inventories are a key component of GDP changes. The GDP report last Wednesday showed businesses accumulated $87.4-billion (U.S.) worth of stock in the first quarter, a sharp slowdown from $111.7-billion in the final months of 2013.
That resulted in inventories slicing off more than half a percentage point from first-quarter GDP.
The slow pace of inventory accumulation combined with an abnormally cold winter to hold down GDP growth to a 0.1 per cent annual pace in the first three months of the year, according to last week’s GDP report.
Businesses ramped up their pace of restocking in the second half of 2013, but the goods ended up piling up in warehouses. And with demand for goods slackening in the first quarter, businesses placed fewer orders with manufacturers.
In March, wholesale stocks excluding autos, the component that goes into the calculation of GDP, increased 1.0 per cent.
“We are taking our tracking estimate of first-quarter real GDP growth up from minus 0.8 per cent to minus 0.6 per cent,” said Daniel Silver, an economist at JPMorgan in New York.
Sales at wholesalers rose 1.4 per cent in March after increasing 0.9 per cent the prior month.
At March’s sales pace it would take 1.18 months to clear shelves, down from 1.19 months in February.
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