US: Wholesale Trade

January 10, 2017 09:00 CST

Consensus Consensus Range Actual Previous
Inventories - M/M change 0.9% 0.3% to 0.9% 1.0% 0.9%

Wholesale inventories rose very sharply in November, up 1.0 percent compared to 0.9 percent in the advance report and a draw of 0.1 percent in October. The good news is that November's build is centered in autos (+3.2 percent) where retail sales proved very strong in December. Sales at the wholesale level rose 0.4 percent which compared to the larger gain in inventories pulled up the stock-to-sales ratio to a less lean 1.32 from October's 1.31. Excluding autos, however, the ratio held unchanged at 1.27.

Inventories were heavy going into the fourth quarter and though September proved stable, early indications on November inventories (which also include retail and manufacturing) are pointing to a big build. Whether this build will prove a problem for production and employment in the first quarter will depend on how strong consumer spending was during the holidays. Watch for December retail sales on Friday morning followed at midmorning by the business inventories report.

Market Consensus Before Announcement
Wholesale inventories are to rise a very sharp 0.9 percent in November, in line with the 0.9 percent gain posted in the advance report. The advance indication for retail inventories also rose sharply and together with wholesale inventories are hinting at an unwanted fourth-quarter build, one that would give a boost to GDP but would pose risks for future production and 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.