May Business Inventories fell 1%, .2% more than expected and April was revised down by .2%. It’s the 9th straight month of declines. With sales down .1%, the inventory to sales ratio fell to 1.42 from 1.43 and its at the lowest level since Oct ’08 when it was at 1.36. The record low was 1.24 back in Jan ’06 with a 30 year average of 1.45. This ratio has seen a secular decline due to just in time inventory and better tracking of the supply chain. The overall drop in inventories was again led by the auto sector which saw a decline of 4.2% (at the retail level) and is down 21% y/o/y and it is this backdrop that provides optimism that auto inventory restocking will lend a boost to 2nd half GDP. Net-net, the bigger than expected fall in April and May Business Inventories will lead to a modest cut to Q2 GDP estimates that should be more than offset by a positive contribution from trade.
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