Inventories Rising Leading Strength In Sales

Inventories are rising which is an immediate positive for GDP and they're behind the strength in sales which is a future positive for both production and employment. Business inventories rose an as-expected 0.4 percent in May against, however, a 1.4 percent surge in business sales. The mismatch pulls the inventory-to-sales ratio down a notch to 1.34 vs 1.35 in April and March. Looking at year-on-year comparisons, inventories are up 4.4 percent while sales are up 8.6 percent.

Sales data in May are led by wholesalers and retailers with wholesalers showing the largest inventory build. These results call to mind last week's producer price report where trade services, which track costs at retailers and wholesalers, showed clear prices pressures. Sales are very strong right now and businesses may be having trouble keeping up with the demand.