<img src=" http://www.joplinglobeonline.com/images/zope/thursday.gif" border=0> Wholesale inventories fall while sales increase

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March 11, 2010

Anonymous The Joplin Globe Thu Mar 11, 2010, 07:47 AM CST

WASHINGTON (AP) — Businesses trimmed inventories at the wholesale level again in January even though sales rose for a 10th consecutive month. The dip in inventories underscored that businesses remain cautious about restocking their depleted shelves.

The Commerce Department said Wednesday that inventories at the wholesale level were reduced 0.2 percent in January following a 1 percent drop in December. Sales were up a solid 1.3 percent, the best showing since a 3.6 percent rise in November.

Economists are hoping that the steady gains in sales will soon prompt a sustained rebound in inventory restocking. That would trigger increased factory production and provide support for the fledgling recovery.

Analysts believe the stage has been set for such a rebound given how lean inventories are at present following a massive inventory liquidation that occurred during the recession. Inventories at the wholesale level for 13 straight months and have been down 15 of the past 17 months. The only gains in wholesale inventories occurred in October and November.

With the January drop in inventories, the ratio of inventories to sales dipped to a record low of 1.10, meaning it would take 1.10 months to deplete inventories at the wholesale level given the January sales pace. That was the lowest point since the data series began in 1992.

The January drop in inventories was a disappointment. Economists had expected inventories would post a small increase of 0.2 percent. The government also revised the December report to show a bigger inventory drop of 1 percent rather than the 0.8 percent fall that was originally reported.

Mike England, an economist at Action Economics, said that he looked for the bigger drop in inventories in December to contribute to a downward revision in the gross domestic product for the fourth quarter. He predicted GDP would be trimmed from a 5.9 percent growth rate to 5.5 percent. He said he expected the GDP to grow at a 2.3 percent rate in the current January-March quarter.

Robert Brusca of FAO Economics said he believed part of the decline in inventories in December and January reflected a bigger-than-expected sales gain which prompted businesses to draw down their stockpiles more than they planned.

“The acceleration to a strong growth rate for sales is clear evidence that the drop in inventories probably was not intended,” Brusca said in a research note. “All this suggests that inventory building should resume and do so with considerable gusto.”

Economists believe that the current recovery can’t be sustained until businesses begin consistently restocking their depleted shelves. That restocking would mean higher orders to factories and growing demand for manufacturing workers.

Wholesalers hold 25 percent of all inventories with factories holding about one-third and retailers holdings the rest.

Businesses slashed inventories by massive amounts during the recession as they struggled to control costs in the face of a deep recession and falling demand for their products.

But the economy got a boost in the final three months of last year from a slowdown in the inventory liquidation process.

The swing from massive inventory reductions contributed two-thirds of the economy’s overall growth of 5.9 percent in the October-December period. Economists are now hoping to see the beginning of sustained inventory rebuilding.

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<img src=" http://www.joplinglobeonline.com/images/zope/thursday.gif" border=0> Wholesale inventories fall while sales increase

Joplin City Manager Mark Rohr wants the city to distribute weather radios to all Joplin homes that don’t have one. That’s 11,000 radios. Do you think that’s a good use of $300,440?

Joplin City Manager Mark Rohr wants the city to distribute weather radios to all Joplin homes that don’t have one. That’s 11,000 radios. Do you think that’s a good use of $300,440?

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