American firms increased their inventories just 0.1 percent in July far less than the 0.5 percent forecast. The June result was revised lower to 0.2 percent from the original 0.3 percent. This was the third forecast miss in a row and the weakest inventory addition since July 2013.
Inventory is a major component of GDP and the poor start to the third quarter raises concerns that economic growth will be much weaker in the third quarter than the strong 4.2 percent annualized expansion in the second. The U.S economy contracted 2.1 percent in the first quarter.
Economists have estimated that inventory build averaging 0.5 percent each month amounted to 40 percent of the final GDP increase last quarter.
"The change in real private inventories added 1.39 percentage points to the second quarter change in real GDP after subtracting 1.16 points from the first-quarter change," stated the Bureau of Economic Analysis in their revision to second quarter GDP released on August 28th.
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