U.S. business inventories rise for third consecutive month in July, to add to Q3 GDP growth

U.S. business inventories were up for the third straight month in July and look poised to contribute positively to third quarter GDP. Following a strong gain in June, business inventories were up 0.2 percent in July. Inventories rose at manufacturers and wholesalers; however, they dropped in the retail sector as non-auto retailers pared back stocks.

With sales also growing 0.2 percent, the inventory-to sales ration remained stable in July. Auto inventories at the retail level stayed elevated, while excluding autos the retail I-S ratio dropped down. Even if it is just the first month of the quarter, the report released today underpins the view that inventories would be additive to GDP in the third quarter, noted Wells Fargo in a research report. It would not take much of a rise in real inventories to provide a considerable boost to GDP after two quarters of scant stock building.

“We are currently penciling in a $30 billion annualized increase, which would add 0.7 percentage points to topline GDP growth”, added Wells Fargo.

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