Change in Inventories (from NIPA accounts)

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. For example, an excessive increase in inventories may signal that aggregate demand is slowing down and that firms will soon cut back production and output in face of such a fall in the demand for goods and services. 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.

Related Indicators:   Investment

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



Likely Impact on Financial Market:

         Interest Rates: Larger-than-expected quarterly increase or increasing trend is considered       inflationary, causing bond prices to drop and yields and interest rates to rise.

Ability to affect markets:...
The economy's average sustainable growth rate has historically been between 2.5% and 3.0%. Rapid economic expansion,growth in excess of the average sustainable rate, is generally short-lived, as it can lead to inflation and, in turn, cause the Federal Reserve to tighten monetary policy in order to slow growth. An economic downturn, or negative growth, is known as a recession. During a recession, the Fed may lower interest rates to stimulate the economy and increase the growth rate.

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

You can chart , Inventories, GDP and other NIPA data from the NIPA VISUALIZATION PAGE

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 latest GDP report from First Union

An Analysis of the latest GDP report from Morgan Stanley's Stephen Roach