US: Wholesale Trade

Fri Dec 09 09:00:00 CST 2016

Consensus Consensus Range Actual Previous
Inventories - M/M change -0.4% -0.4% to 0.3% -0.4% 0.1%

Inventories were looking heavy going into the fourth quarter but, given strength in demand, are turning out to be perhaps too lean. Inventories at the wholesale level fell 0.4 percent in October, drawn down by a 1.4 percent surge in wholesale sales. The mismatch drops the stock-to-sales ratio from 1.32 to 1.30 for the lowest reading in nearly two years. Advance data for retail point to a similar decline for retail inventories to be posted next week while factory inventories, posted earlier in the week with the factory orders report, were unchanged.

Market Consensus Before Announcement
Wholesale inventories are expected to fall 0.4 percent in October in line with the month's advance estimate. Over the last year, wholesale inventories have been flat, in balance with what have been soft sales for the wholesale sector.

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.