US: Wholesale Trade

Fri Feb 09 09:00:00 CST 2018

Consensus Consensus Range Actual Previous Revised
Inventories - M/M change 0.2% -0.4% to 0.2% 0.4% 0.8% 0.6%

Inventory build for wholesalers came in 2 tenths stronger than expected at a 0.4 percent gain in December but in an offset for the second estimate of fourth-quarter GDP, the build for November is revised down 2 tenths to 0.6 percent.

Much of the recent build has been centered in autos where sales have been slowing noticeably. Yet autos aside, inventories in the sector do appear to be too low relative to wholesale sales, up 1.2 percent in December following a 1.9 percent rise in November. The year-on-year comparison tells the story, up 9.1 percent for sales in December vs only a 3.4 percent rise for inventories. The stock-to-sales ratio is down to 1.22 vs November's 1.23 and vs 1.29 in December last year.

Growth in the nation's inventories slowed in the fourth-quarter which is a negative for GDP but, given the strength of overall demand, the slowing points to the need for restocking which should prove a concrete plus for first-quarter production and employment.

Market Consensus Before Announcement
December wholesale trade inventories are expected to rise 0.2 percent in line with advance data which also showed a 0.2 percent build. Inventory build -- due to strong demand -- slowed in the fourth quarter in what held down GDP, yet this points to the need for restocking in the first quarter and gains in turn for 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.