Wednesday, December 11, 2013

Inventories pose near-term risks to US growth

In spite of some relatively strong economic data coming out of the US (see post), risks to near-term growth remain. One of those risks comes from higher than expected inventory build. We saw this come through in the latest GDP numbers.
TD Economics: - While the headline certainly looks good, the significant upward revision to inventories is not great from the point of view of the fourth quarter. The accumulation in inventories appears somewhat excessive for the quarter. After the 1.8 pp contribution in Q3, we believe inventories alone will likely subtract close to a percentage point from Q4 real GDP growth. In addition to the drag on government spending from the shutdown in October, this will likely amount to fairly modest economic growth at the close of 2013.
The high inventory accumulation among US firms is clearly visible in the monthly data as well.


This could be especially problematic if retail sales weaken. While it is difficult to say how retail sales are faring in December, at least one indicator is pointing to less than stellar performance (see chart).
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