Updated: Apr 15, 2020
In the first quarter of 2019, the US GDP grew at a surprisingly strong 3.2%. Inventory increases played a big part in the growth.
According to the Bureau of Economic Analysis, seasonally adjusted inventory grew by $46.3 billion in Q1, which translates into an annual rate of $129 billion from Q4 of last year. This increase in inventory, adjusted for inflation, added +.65 percentage points to the GDP. If the inventory had shown no increase from Q1 to Q4, estimates show that GDP growth would have been 2.55%.
There is a lot that makes up these inventory numbers, the largest categories of which include manufacturers, wholesalers, retailers (including auto dealers), and farm inventory. Based on Commerce Department figures, farm inventory has been on a downtrend since it peaked in 2014, manufacturer's inventory rose by 3.6% year-over-year in February having come off of a low point in 2016, retail and auto dealer inventory rose by 4.3% in February, and merchant wholesale inventory sustained the largest increase of 6.9%.
While the increases in inventory represents a strong sign in the growth of the economy, and potentially a great position for inventory lenders, it will likely have to whittle down over time, particularly with wholesalers and manufacturers. How fast the pare down will occur will determine the impact on future GDP figures, but so far the process looks to be planned and slow with very little dramatic impact on the economy.