Why is 'Business Inventories' the Term of the Day?

St. Louis Federal Reserve Bank

This week’s earnings reports will focus on major retailers and how successful they’ve been at reducing inventories, with Walmart set to report second-quarter earnings later this morning. The retail giant is expected to underperform its earnings estimates, largely due to a slowdown in consumer spending as inflation remains persistently high, pushing consumers to cut back on discretionary purchases. Faced with excess inventories, Walmart has had to lower prices on many of its goods in order to stimulate sales and generate demand. Target, which releases earnings on tomorrow, also warned that its profits would take a hit, as the company aggressively marks down products to clear inventory. 

Declining consumer confidence driven by high inflation, in addition to ongoing supply chain bottlenecks, could complicate retailers’ efforts to reduce their inventories. The U.S. Census Bureau will release its monthly report on business inventories on Wednesday, and is projected to show business inventories rose 1.4% in June from a month prior, keeping pace with May’s gain of 1.4%. Year-over-year, business inventories are up 17.7%, marking the fastest annual jump since the Census Bureau began tracking inventories in 1992. Business inventory growth has been particularly strong throughout the economic recovery from the COVID-19 pandemic, with in-store shopping still lagging pre-pandemic levels.

-Mack