June Business Inventories rose just .1% vs the estimate of up .2% but because sales fell by 1.1%, the inventory to sales ratio rose to 1.29, the highest since Feb ’10. Inventories at the wholesale level, about 25% of total inventories, fell by .2%. Inventories at retail rose by .6%. Bottom line, the less than expected build in June inventories will only modestly detract from the Q2 GDP revision and will be more than offset to the upside by the positive June trade data. This said, because of the softness in sales in Q2, the modest increase in inventories over the past few months is not necessarily a precursor to a Q3 inventory build, notwithstanding the July sales pick up. Also, the large discounting seen in July retail store comps could be partly explained by the inventory situation relative to sales in the prior months.
