US Business Inventories Rose 0.8% in July, Exceeding Forecasts

U.S. business inventories increased by 0.8% in July, outpacing the 0.3% rise expected by economists and marking an acceleration from June's upwardly revised 0.1% uptick, according to a Reuters report.

Retailers and wholesalers are restocking shelves after weathering five consecutive quarters of inventory reductions driven by domestic demand. The Commerce Department’s Census Bureau reported that overall business inventories advanced 3.8% on a year-on-year basis in July, signaling a shift in supply chain management as firms transition from destocking to rebuilding inventory cushions.

GDP Impact and Growth Estimates

Inventory drawdowns served as a drag on economic output earlier in the year. According to official Commerce Department figures, inventories reduced gross domestic product growth by 0.72 percentage points in the second quarter.

During that same April-June period, the U.S. economy expanded at a 1.5% annualized rate. However, stronger restocking activity and consumer spending have pushed current economic growth estimates for the July-September quarter above a 2% pace.

Sales Pace and Inventory-to-Sales Ratios

Despite the dollar-value build in stocks, the inventory-to-sales ratio remained stable. At July's sales pace, it would take 1.30 months for businesses to completely clear their shelves, unchanged from June.

This steady inventory-to-sales ratio indicates that the jump in restocking is keeping pace with consumer purchasing velocity rather than resulting in unsold merchandise piling up in warehouses.