Importance: ***

Definition: Changes in inventories are the smallest component of the GDP, usually less than 1% of GDP but they are much more important than their absolute size. In fact, large changes in inventories signal changes in aggregate demand and, thus, are indicators of future economic activity. As the change in inventories is a flow equal to the change in the stock of unsold goods, they are a form of investment, often referred to as involuntary investment.

Related Indicators: While the data on Change in Inventories from the GDP accounts (NIPA) are published on a quarterly basis, the related measure of Business Inventories is published instead on a monthly basis. As the change in inventories is a flow equal to the change in the stock of unsold goods, they are a form of investment. They however differ from the related concept of fixed investment in the GDP accounts (that represents the change in the stock of installed capital in the economy) as they are they measure the change in the stock of unsold goods.

Source: Department of Commerce, Bureau of Economic Analysis (BEA), NIPA dataset.

Frequency: Quarterly, revised monthly. The GDP for a given quarter is released in the first month following a quarter as the "advance estimate". The "preliminary estimate" is published in the second month, followed by the "revised" estimate in the third month.

Availability: Three to four weeks following the reported quarter
 
Direction: Pro-cyclical

Timing: Leading indicators

Volatility: High

Likely Impact on Financial Market: High

Interest Rates: Unexpected increases in inventories will lead to a fall in interest rates as the economy is expected to slow down and inflation abate.

Stock Prices: Unexpected increases in inventories have an ambiguous effect. On one side, as they  lead to a fall in interest rates they have a bullish effect on stock prices. On the other, as they signal a slowdown in economic activity that may turn into a recession and lower corporate profits, they may lead to a fall in the stock market.

Exchange Rates: No strong effect.

WEB Links

Graphs of the latest GDP data from The Economic Statistics Briefing Room of the White House

A table with the most recent Inventories and GDP data  from the BEA

The latest GDP report from BEA discusses changes in inventories

See the Dismal Scientist Homepage for charts, tables and analysis of the latest report.

You can see Inventories charts with theEconomic Chart Dispenser

You can create customized charts of Inventories and other variables with the Economic Chart Maker  Tip: type "INVENTORIES" in the Label section of the form and choose the transformation of the data you are interested in.
 

An analysis of the 1997-Q-3 GDP report from First Union

An Analysis of the 1997-Q3 GDP report from Morgan Stanley's Stephen Roach
 
An Analysis of the 1997-Q2 GDP report from Morgan Stanley's Stephen Roach