Business inventories in the U.S. rose in January, reversing a decline in the previous month as slowing sales boosted stockpiles at wholesalers. This increase could contribute to economic growth in the first quarter of 2025.
Inventories Rise After December Decline
According to the Commerce Department’s Census Bureau, business inventories increased 0.3% in January, following a 0.2% decline in December. The rise was in line with economists’ expectations.
- Year-on-year, inventories rose by 2.3%, reflecting a buildup in stock levels across key industries.
- Inventories are the most volatile GDP component, often fluctuating with shifts in consumer demand and supply chain conditions.
Impact on Economic Growth
In the fourth quarter of 2024, private inventories were nearly depleted due to strong consumer spending, some of which was driven by pre-emptive buying ahead of new tariffs. This dragged GDP growth down to 2.3% annualized.
First-Quarter GDP Projections Vary
Economists now estimate that first-quarter GDP could range anywhere from a 2.4% contraction to 1.3% growth, depending on how inventory levels influence overall economic activity.
Sector Breakdown: Retail, Auto, and Wholesale
- Retail inventories remained unchanged in January, instead of the 0.1% dip previously reported.
- Motor vehicle inventories fell 1.0%, slightly better than the 1.1% decline estimated earlier. In December, auto inventories had dropped 1.5%.
- Retail inventories excluding autos, which directly impact GDP calculations, rose 0.5%, compared to the previously estimated 0.4% increase.
- Wholesale inventories saw a 0.8% increase, while stocks at manufacturers edged up 0.1%.
Business Sales Decline
Business sales fell 0.8% in January, reversing a 1.0% gain in December. With slowing sales, businesses are taking longer to clear their inventory, impacting supply chain efficiency.
- At January’s sales pace, it would take 1.37 months for businesses to sell their inventories, up from 1.35 months in December.
Key Takeaways
- Inventories rebounded, but weaker sales suggest economic uncertainty.
- Auto inventories continue to decline, reflecting ongoing challenges in the sector.
- Retail and wholesale stockpiles grew, which could support GDP growth.
- Business sales declined, raising concerns about demand softening.
What’s Next?
With Trump’s tariff policies and ongoing market volatility, businesses may face further shifts in consumer demand. The impact of rising inventories and declining sales will be closely watched in the coming months to assess the overall economic outlook.
