2. Inventories need replenishing
Consumer spending was much stronger than businesses expected in the fourth quarter. As a result, inventories shrank, actually reducing GDP by $114 billion compared with the prior quarter. Although retailers are anxious to see if consumer spending will remain strong, they will also have to replenish their inventories.
“That is good news for the first quarter,” says Wyss, who notes that early economic reports in January indicate that the pace of manufacturing remains healthy.
Still, a lot of merchandise is likely to come from overseas. That would reverse what happened at the end of last year, when imports actually dropped while exports rose. “Imports are already beginning to rebound,” says Sung Won Sohn, a professor of finance at the Smith School of Business, California State University, Channel Islands.
But some of the inventory rebuilding is made in the USA, he notes. “The auto industry is a good example. They have ramped up production,” he says.