US: Wholesale Trade

Fri May 08 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Inventories - M/M change 0.3% 0.3% to 0.5% 0.1% 0.3% 0.2%

The wholesale inventory build slowed in March against what are extending declines in sales. Inventories in the sector rose 0.1 percent while sales fell for the 8th month in a row, down 0.2 percent. The inventory-to-sales ratio is at 1.30, up from 1.24 as recently as December and from 1.20 going back to September.

Wholesale inventories of metals, where sales have been in contraction, look very heavy relative to demand as do machinery inventories. Those on the thin side include chemicals where sales have picked up. Auto inventories held steady in March but are still heavy relative to trend.

Wholesale payrolls fell 5,000 in this morning's employment report, one of the few contractions for this reading of the whole recovery and one reflecting that long 8-month dismal streak for wholesale sales. Inventories remain heavy in the wholesale sector reflecting, ultimately, softness in the retail sector.

Market Consensus Before Announcement
Wholesale inventories have been rising at the same time that wholesale sales have been falling. The inventory-to-sales ratio for the sector, at 1.29, is the highest since the recession period of 2009. High inventories may prove a headwind for the second quarter, holding down production and also employment.

Wholesale trade measures the dollar value of sales made and inventories held by merchant wholesalers. It is a component of business sales and inventories.

Investors need to monitor the economy closely because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers a slower rate of growth that won't lead to inflationary pressures. Wholesale sales and inventory data give investors a chance to look below the surface of the visible consumer economy. Activity at the wholesale level can be a precursor for consumer trends. In particular, by looking at the ratio of inventories to sales, investors can see how fast production will grow in coming months. For example, if inventory growth lags sales growth, then manufacturers will need to boost production lest product shortages occur. On the other hand, if unintended inventory accumulation occurs (i.e. sales did not meet expectations), then production will probably have to slow while those inventories are worked down. In this manner, the inventory data provide a valuable forward-looking tool for tracking the economy.