U.S. Wholesale Inventories Rise Strongly; First-quarter GDP Seen Revised Slightly Up

U.S. wholesale inventories increased solidly in March and the pace of accumulation in the prior month was stronger than previously reported, which could lead to a small upward revision to the first-quarter gross domestic product estimate.

The Commerce Department said on Monday that wholesale inventories rose 2.3% in March as reported last month. Data for February was revised higher to show stocks at wholesalers climbing 2.8% instead of the previously reported 2.6%.

Economists polled by Reuters had expected March inventories would be unrevised. Wholesale inventories advanced 22.0% in March on a year-on-year basis. Inventories are a key part of gross domestic product. Wholesale motor vehicle inventories accelerated 2.4% after rebounding 1.9% in February.

Wholesale inventories, excluding autos, rose 2.3% in March.

Inventory investment slowed in the first quarter from the October-December period's robust pace, subtracting 0.8 percentage point from GDP last quarter. That combined with a record trade deficit to weigh on GDP, resulting in the economy contracting at a 1.4% annualized rate in the first quarter.

Following February's upward revision, economists estimate that inventories subtracted 0.6 percentage point from GDP, which would trim the pace of decline in output to a 1.3% rate.

Economists had anticipated the rate of decrease in GDP would be raised to a 1.5% rate after data last week showed the surge in the trade deficit in March was bigger than what they said the government assumed in its snapshot of first-quarter GDP.

"The real change in inventories in the first quarter looks strong," said Daniel Silver, an economist at JPMorgan in New York. "But this is still more modest than the fourth quarter change in inventories, and we still believe inventories weighed on GDP growth in first quarter."

The government is scheduled to publish its first GDP revision later this month. The number could also be impacted by March business inventories data due next week as well as any revisions to March retail sales, industrial production, housing starts and durable goods orders data.

Sales at wholesalers increased 1.7% in March after gaining 1.5% in February. At March's sales pace it would take wholesalers 1.22 months to clear shelves, unchanged from February.

With the Federal Reserve raising interest rates to curb inflation, demand is expected to cool. Some economists warn that this, in an environment of fractured supply chains, could create an inventory imbalance that could trigger a recession.

"The current supply-chain disruptions are making it difficult for businesses to manage their inventories," said Matt Colyar, an economist at Moody's Analytics in West Chester, Pennsylvania. "Therefore, it's possible that businesses are caught with excess inventories in a couple of years as they over-order today to compensate for the delays."