Business inventories fall for the first time in two years

U.S. business inventories fell for the first time in nearly two years in January, potentially setting up inventory investment to dampen economic growth in the first quarter.

Business inventories fell 0.1%, the Commerce Department said Wednesday. It was the first decline and also the weakest reading since April 2021, and followed a 0.3% increase in December. Economists polled by Reuters had expected inventories, a key component of gross domestic product, to be unchanged.

Inventories rose 11.1% year-on-year in January. Inventory accumulation rose in the fourth quarter, mainly reflecting an unwanted stockpiling of goods as consumer spending growth slowed due to higher interest rates.

Retail inventories rose 0.2% instead of 0.3% as estimated in an advance report published last month. They rose 0.4% in December.

Motor vehicle inventories rose 0.6% as estimated last month. They rose 1.4% in December. Retail inventories excluding cars, which are included in the calculation of GDP, rose 0.1% instead of the 0.2% increase estimated last month.

Inventories accounted for half of the 2.7% annual growth rate in GDP last quarter. Analysts say a liquidation of these unsold goods could help tip the economy into an expected recession this year.

Wholesale inventories fell 0.4% in January. Inventories at manufacturers were unchanged.

Business sales rose 1.5% in January after falling 0.6% in December. At January’s sales pace, it would take 1.34 months for companies to clear shelves, down from 1.36 months in December.

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