WASHINGTON (Reuters) – U.S. business inventories rose slightly less than expected in August, but there are signs that retailers and wholesalers are piling up unsold goods as rising inflation and higher interest rates slow demand.
The Commerce Department said Friday that business inventories rose 0.8% after jumping 0.5% in July. Inventories are an essential component of GDP. Economists polled by Reuters had expected inventories to rise 0.9 percent.
Inventories rose 18.2% year over year in August.
Retail inventories jumped 1.3% in August instead of 1.4% as expected in an advance report published last month. This followed a 1.0% increase in July. Retailers find themselves saddled with excess goods, a function of relieving supply chain bottlenecks and slowing demand for goods.
This could lead companies to offer discounts on prices and discourage some from placing more orders until unwanted inventory is eliminated, at the expense of manufacturing and the broader economy next year.
An oversupply of goods and the Federal Reserve’s aggressive monetary policy stance have left many economists forecasting a recession in 2023.
The Fed raised its policy rate from nearly zero in March to the current range of 3.00% to 3.25% as it battles inflation. A fourth straight interest rate hike of 75 basis points is expected next month after data on Thursday showed inflation rose strongly in September.
Auto stocks rose 3.5% instead of 3.7% as expected last month. They advanced 3.5% in July.
Retail inventories excluding autos, which go into the GDP calculation, rose 0.6% as estimated last month.
Wholesale inventories rose 1.3% in August. Stocks in manufacturers fell 0.1%.
For now, inventories are expected to combine with a shrinking trade deficit to boost GDP in the third quarter. The Atlanta Federal Reserve estimates that gross domestic product rose at a rate of 2.9% in the fourth quarter after declining at a pace of 0.6% in the second quarter.
Business sales rebounded 0.3% in August after declining 1.0% in July. At the pace of August sales, it would take 1.33 months for businesses to clear shelves, up from 1.32 in July.
