Wednesday, April 8, 2009

Wholesaler report shows encouraging signs on inventories

Today, the Census Bureau released the following report on merchant wholesaler sales and inventories:
February 2009 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $319.7 billion, up 0.6 percent (+/-0.7%)* from the revised January level and were down 14.3 percent (+/-1.6%) from the February 2008 level.

Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $419.3 billion at the end of February, down 1.5 percent (+/-0.4%) from the revised January level, and were down 1.7 percent (+/-0.9%) from a year ago.
The chart illustrates the investment to sales (I-S) ratio for the manufacturing (released last week) and wholesale sectors. Overall, the data indicate that production is coming line with demand, even falling faster, across both sectors as their I-S ratios fall to 1.45 and 1.31, respectively.

In the newest wholesale report, the rate at which firms draw on inventories is increasing; in February, inventories fell for the first time on an annual basis since 2002, -1.7%. This is bad for Q1 2009 GDP since inventories draw is a drag on GDP, but it does suggest that the point at which firms start adding to inventories might have inched closer. The quicker that inventories fall, the sooner must firms start adding to them again (assuming some positive demand for the goods). However, this is just one data point - let's wait for a trend to get excited.

The final part of the puzzle will be released on Tuesday when the Census Bureau reports Business Inventories, which includes retail.

Rebecca Wilder

1 comment:

  1. Rebecca, do you know if there is a way to tell whether this decline in inventories was planned? I wonder whether firms are expecting a further lowering of demand.

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