The numbers: Businesses boosted inventories, or products waiting to be sold, by 1.4% in June in a sign they are still churning out lots of goods in anticipation of steady U.S. economic growth. Sales rose almost as much in the month.
Rising inventories adds to gross domestic product and usually reflect an expanding economy, but if inventory levels get too high, it could suggest that demand is waning and a recession is on the horizon.
So far that does not appear to be the case. The ratio of inventories to sales was unchanged at a relatively mild 1.30 in June. That’s how many months it would take to sell all the inventory on hand.
Sales rose 1.3% in June, soaking up most of the increase in inventories.
Economists watch inventory levels closely because they tend to foreshadow ups and downs in the economy.
Big picture: The overall inventory picture looks OK for the U.S. economy.
There’s been some worry that companies were getting stuck with too much inventory on their shelves and that the overhang could contribute to a recession.
Some companies stocked up too much early in the year and now have to discount prices to move merchandize. Other businesses are still producing lots of goods and services , but they are trimming back in case the economy goes south.
The latest report appears to discount worries about an excessive inventory buildup, however.
Looking ahead: “We anticipate firms will continue replenishing their stockpiles, though the rate at which inventories are restocked will slow over the coming months,” said U.S. economist Mahir Rasheed of Oxford Economics.
Market reaction: The Dow Jones Industrial Average DJIA, -0.69% and S&P 500 SPX, -0.97% SPX, -0.97% fell in Wednesday trades, breaking up a recent rally.