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US Wholesale Inventories Climb as Sales Falter

Posted by Joseph Trevisani on May 9, 2017 6:31:35 PM

Inventories at American wholesale outlets  rose in March as sales stagnated making it less likely that distributor orders will help revive the economy leading into the second quarter.

Wholesale stockpiles rose 0.2 percent after a 0.3 percent jump in February that had originally been reported as a 0.1 percent decline, said the Commerce Department on Tuesday.  Analysts had predicted that inventories would decline 0,1 percent in March.

Auto inventories increased 1.9 percent  and holdings of electrical goods ran up 2.3 percent, the largest build since January 2015. Retained production at factories was flat in March after rising 0.2 percent in February.

Sales at wholesalers were unchanged in March following a 0.7 percent gain in February.  Sales of electrical goods  fell 0.3 percent the mirror image of their inventory surge.  

The inventory build in February and March subtracted 0.93 percent from GDP growth in the first quarter helping to keep the economy to a 0.7 percent annualized growth rate, the lowest in three years. Inventories had added to GDP in the previous two quarters. 

Orders from whoesale firms are an integral component of economic activity and an early indicator of retail demand. In a strongly growing economy distribution firms keep relatively little inventory on hand, supplying the market from incoming orders. 

At the selling pace in March distribution firms would need  1.28 months to clear their backlog of goods, the same as in February. This ratio has dropped from 1.35 months in January and February 2016,  which was the highest since January 2009.


Joseph Trevisani

Chief Market Strategist


Chart: FX Street

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