U.S. business inventories fall in April, may rebound in May and June

U.S. business inventories dropped in April after rising in March. Business inventories dropped 0.2 percent after growing 0.2 percent in the prior month. This marks the end of five consecutive months of modest rises. Inventories fell in April even though business sales remained flat on aggregate.

Business inventories dropped in line with consensus expectations. The reversal was mostly due to the trade side, with retail inventories dropped 0.2 percent while wholesalers’ inventories dropped 0.5 percent. Manufacturers’ inventories rose 0.1 percent.

Meanwhile, motor vehicles and parts inventories increased in recent months as sales had weakened. The total business inventory-to-sales ratio has stayed at 1.37 for the last five months, implying inventories are roughly keeping rate with slower growing demand, noted Wells Fargo in a research report. Auto dealers were one exception where inventories dropped 0.4 percent in April, possibly hinting the beginning of a needed correction.

“Inventories will need to rebound solidly in May and June in order to provide a meaningful boost to Q2 GDP growth”, added Wells Fargo.