US: Wholesale Trade

Tue Apr 10 09:00:00 CDT 2018

Consensus Consensus Range Actual Previous Revised
Inventories - M/M change 1.1% 0.9% to 1.1% 1.0% 0.8% 0.9%

One of the positives for first-quarter GDP is a major inventory build for wholesalers who are trying to keep up with sales. Wholesale inventories rose 1.0 percent in February with January revised higher to 0.9 percent. Year-on-year, February inventories were up a very sizable 5.5 percent but trailing sales which were very strong at 6.8 percent.

Wholesale data include early builds this year for machinery and electrical goods and also primary metals, all of which are part of the capital goods group and at the heart of business investment with metals of special note going into the tariffs of March. It will be interesting to see whether wholesalers in March attempted to, or were able to, stockpile steel and aluminum in an anticipation of higher prices and the risk of scarcity ahead.

But wholesale aside, neither inventories nor sales are showing the same kind of strength in the retail or factory sectors though shipments for the latter have been accelerating. Watch next week for updates on both sectors in the business inventories report.

Market Consensus Before Announcement
February wholesale trade inventories are expected to rise 1.1 percent, in line with the month's advance reading and following strong builds of 0.8 and 0.7 percent in the two prior months.

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.