There is one big mystery in the first-quarter GDP report - where did all the inventories come from if industrial output and imports both were weak?
Growth in the first quarter smashed expectations, fueled in part by strong inventory building. According to the government, $32 billion of goods were added to inventories this quarter, or $128 billion annualized. This stockpiling of goods boosted first-quarter GDP growth by about 70 basis points and helped propel growth to a 3.2% annual rate, well above forecasts.
“You can’t stockpile what you do not import or do not produce,” said Robert Brusca, chief economist at FAO Economics. Consumption did not fall faster than industrial production or imports to generate any surplus, he said. To be sure, spending on consumer durable goods fell 5.3%, the biggest drop in 10 years. Business spending on equipment was also weak.One possible culprit is Boeing BA, -0.53% , which could have some unsold 737 Max 7 airplanes. But these have a list price of $100 million. That doesn’t account for $32 billion in inventories.
“People built new factories last year. This year they’re turning them on and are beginning to produce output. In the first quarter, I think a lot of that new output from the new factories went into inventories,” Hassett told CNBC.
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