U.S. business inventories declined for the first time in close to two years in January, possibly setting the stage for inventory investment to slow first-quarter economic growth.
This was disclosed by the Commerce Department on Wednesday. It said the drop was about 0.1%
It was the first decrease and the worst reading since April 2021, according to Reuters, and it came after a 0.3% increase in December.
Meanwhile, Inventories, an important part of the Gross Domestic Product, were predicted to remain unchanged by economists surveyed by Reuters.
Business inventories is a measure of the economy that measures the dollar value of the stockpiles that manufacturers, wholesalers, and retailers around the country have.
In January, inventories rose 11.1% compared to that of January last year.
While consumer spending growth slowed due to increasing interest rates, inventory accumulation spiked in the fourth quarter, primarily indicating an accumulation of undesired goods.
It was reported that instead of increasing by 0.3% as predicted in an advance report released last month, retail inventories grew by 0.2%. December had a 0.4% increase.
According to Reuters, “Motor vehicle inventories advanced 0.6% as estimated last month. They increased 1.4% in December. Retail inventories excluding autos, which go into the calculation of GDP, gained 0.1% instead of the 0.2% rise estimated last month.”
Half of the GDP’s 2.7% annualized growth rate during the most recent quarter was attributed to inventories.
Analysts said, “a liquidation of these unsold goods could contribute to tipping the economy into an anticipated recession this year.”