US: Wholesale Trade

Fri Oct 09 09:00:00 CDT 2015

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

Wholesale inventories look to be pulling down on third-quarter GDP, up only 0.1 percent in August following a downwardly revised 0.3 percent decline in July. But relative to sales, which fell 1.0 percent in August and fell 0.3 percent in July, inventories are looking heavy. The stock-to-sales ratio rose to 1.31 in September from July's 1.30.

Inventories relative to sales rose in autos which is a plus given how strong auto sales proved to be in September. Inventories of machinery also rose but here sales have been uneven and the build might be unwanted. Metals show a large draw on a bounce back for sales.

As far as GDP goes, inventories are looking to have a neutral effect. Businesses are keeping their inventories in check even as sales remain on the slow side. Watch for the business inventories report on Wednesday.

Market Consensus Before Announcement
Wholesale inventories are expected to rise 0.1 percent in August, a build that would not be of concern as long as wholesale sales post a gain. Slow economic growth is making the nation's inventories look heavy.

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.