With higher trade taxes on the horizon, businesses that ran down their pre-positioned stock of goods suddenly find themselves on the bad end of changes to U.S. policy.
Those experiencing the whiplash of trade policy are seeking to get as much as possible into U.S. ports before higher import taxes are enforced in October.
We expect another round of inventory accumulation this quarter as firms that waited to purchase holiday inventories will now have to act before those new import taxes take effect.
Retail inventories peaked at a 7.5% yearly growth rate in October 2024 before dropping back to a 2.5% growth rate in June. On a dollar-cost basis, inventories advanced by more than $160 billion through the first three months of this year—and then declined by $26 billion in the subsequent three months.
The reaction by the wholesale and manufacturing community to the tariffs has been much more circumspect. Our assumption is that businesses weighed the risks of being stuck with unwanted inventories versus the risk of losing market share.
The balance of opinion seems to be that competitors would be facing the same price increases and shortages. The optimal choice was to just stay in business rather than risk the cost of over-expansion should the economy slow down or fall into recession.
That strategy has run its course.
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