GDP Estimates Cut on Weak Inventories Data

Inventories at U.S. wholesalers rose a smaller-than-expected 0.4 percent in March, Commerce Department (search) data showed on Monday, prompting economists to cut forecasts for first-quarter growth.

Wall Street analysts predicted a 0.8 percent increase in stocks after a 0.6 percent gain in February. The weaker March number was due in part to a decline in the stockpile of cars and professional equipment like computers.

The Commerce Department said inventories of durable goods (search) — products meant to last three or more years — edged up 0.1 percent in March. Inventories for non-durable items increased 1.0 percent as stocks of petroleum jumped 9.3 percent, the largest increase since July 2004.

"Based on this result, we now see Q1 GDP being revised down to plus 2.8 percent from plus 3.1 percent," said Morgan Stanley economist Ted Wieseman.

The advance estimate of first-quarter U.S. gross domestic product (search) was a weaker-than-expected 3.1 percent, compared with 3.8 percent in the previous three months. The next revision to the numbers is on May 26.

The first quarter had already seen a large buildup of inventories, and if that number is revised down, it may not be all that bad for growth, Wieseman said, because stocks would probably have fallen in the second quarter anyway. Overall, the latest indications are that the U.S. economy is still healthy.

"The March data have clearly been terrible, but we were encouraged by the strong (April) jobs report," said Wieseman.

The dollar and U.S. government bonds traders took little notice of the report, with investors more concerned about Friday's strong April jobs numbers and upcoming trade data due on Wednesday.

An unexpectedly large 274,000 new jobs were created in April and the previous two months' numbers were revised higher.

Other economists had a similar assessment of the impact of the wholesale inventories report for growth.

"Inventories excluding autos, which is the piece of this report that feeds into GDP, advanced by 0.7 percent, slightly less than the gain assumed by Commerce Department statisticians in their initial estimate of GDP," RBS Greenwich Capital chief economist Steve Stanley wrote in a note to clients.

"This (wholesale data) argues for a small downward revision to the inventory piece of GDP. To date, our running tally of GDP revisions points to a small downward adjustment," he said.

Auto inventories, which had slipped in February, were down again, declining 2.3 percent as sales retreated 0.9 percent. The auto stocks-to-sales ratio, a gauge of how long it would take to empty stocks at the current pace of sales, shrank to 1.35 months from February's 1.37.

Stocks of computers fell 0.3 percent after a 0.4 percent decline the previous month.

Sales at wholesalers gained a scant 0.2 percent in March after dipping a revised 0.5 percent the previous month. February sales had initially been reported as a 0.4 percent fall. The overall wholesale inventories-to-sales ratio was unchanged at 1.19.