US: Inventories to be a drag on Q1 and Q2 GDP growth - Wells Fargo

US: Inventories to be a drag on Q1 and Q2 GDP growth - Wells Fargo

13 April 2016, 22:48
Vasilii Apostolidi
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According to analysts from Wells Fargo, today’s report on inventories from February continues to show an adjustment that should continue as the Inventory-to-sales ratio remains elevated. They expect inventories to be a drag on GDP growth during the first half of 2016. 

“Business inventories have declined in four of the past five months, with the one exception being a flat reading in December. Despite these declines, I/S ratios remain elevated and further adjustment may be in store.”

“Inventories declined 0.1 percent in February and January’s figures were revised down to also show a decline of 0.1 percent. (...) Retail inventories, on the other hand, jumped 0.6 percent.” 

 

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“The decline in inventories was accompanied by a decline in sales, meaning the inventory-to-sales (I/S) ratio held steady at 1.41 in February, a cycle high.”

“Despite the back-to-back declines in business inventories, the elevated I/S ratios indicate more inventory adjustment may be in store during 2016. Therefore, we look for inventories to be a drag to both the first and second quarter GDP growth.”

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