Retail Inventories Jump Higher Than Expected, Dealing Another Blow To Fed Policy

Business inventories rose by 0.3 percent in August, marking the second consecutive month of such growth and the fifth straight month of increases overall, according to a report from the Commerce Department on Thursday.

The accumulation of inventories has provided a boost to the broader economy, with analysts expecting the trend to persist as consumer spending remains resilient. Companies may have ramped up imports ahead of the East Coast port strike, which was suspended earlier this month but remains a concern until at least mid-January.

Retail inventories saw a 0.6 percent increase in August, a slight upward revision from an earlier estimate of 0.5 percent. Motor-vehicle inventories rose by 0.8 percent, following a 1.2 percent rise in July. Excluding autos, retail inventories posted a 0.5 percent gain.

Meanwhile, wholesale inventories edged up by 0.1 percent in August, after a 0.2 percent increase in the previous month. Business sales, however, dipped by 0.2 percent in August, a reversal from the 1.1 percent gain reported in July.

The continued rise in inventories, alongside resilient consumer spending, casts further doubt on the Federal Reserve’s decision to cut interest rates by half a percentage point last month. The robust accumulation of goods suggests that businesses are still confident in future demand, despite concerns over a potential slowdown. Combined with stronger-than-expected retail sales, higher-than-expected inflation, and a much hotter-than-forecast jobs report for September, the data raises questions about whether the Fed’s aggressive move to ease monetary policy was premature, as the economy shows few signs of cooling.