In the Bloomberg survey, economists expected a median reduction to growth of 0.2 percentage point in the second quarter and 0.1 percentage point in each of the following two periods. But there’s a wide range of views of when the drags will happen and how large they will be, with some expecting more than 0.5 percentage point of reductions in coming quarters.
“Business inventories is the most difficult component in GDP to predict,” said Russell Price, a senior economist with Ameriprise Financial Inc. who projected a drag on first-quarter growth.
A Federal Reserve report Tuesday showed factory output fell at a 1.1 percent annual rate in the first quarter, the worst performance since late 2017, a further signal of manufacturing softness as producers cope with an inventory buildup.
Ford Motor Co. noted in a conference call this month that truck inventories amounted to 70 days, up from 66 a year earlier, though Mark LaNeve, vice president for U.S. marketing, said that’s not a serious imbalance. “You will almost never hear Ford dealers have too much truck inventory,” he said.
Overall, “most of the buildup now is slowing demand” with declining new-vehicle sales for the industry this year, said David Whiston, a Morningstar Inc. autos analyst.
Other companies have expressed concern. Luggage maker Samsonite International SA aims to cut inventories to a range of 120 to 125 days from 138 days, officials said on a recent conference call. “We’re very focused on that across all of our regions,” Chief Executive Officer Kyle Gendreau said.
Constellation Brands Inc., the owner of Corona and Modelo beer in the U.S., said distributor inventories were recently higher than expected partly because of poor weather, especially on the West Coast. And electronics maker Jabil Inc. has said it built up stockpiles in anticipation of expanded sales and expects inventory levels to moderate.
“Businesses need to slow the gains in inventory adjustment in line with sales,” said Ben Herzon, an economist with IHS Markit’s Macroeconomic Advisers unit. “That business behavior is not going to be adding to growth going forward.”
This article provided by Bloomberg News.