U.S. Wholesale Inventories Rise Less-Than-Estimated 0.1%; Sales Fall 0.7%

Source: Bloomberg

Inventories at U.S. wholesalers rose less than forecast in June as companies kept stockpiles in line with slowing demand.

The 0.1 percent increase in the value of inventories followed a 0.5 percent gain the prior month, the Commerce Department said today in Washington. Sales at distributors dropped 0.7 percent, the most since March 2009, after a 0.5 percent decrease.

The amount of goods on hand compared with sales held close to a record low, a sign manufacturing will be sustained in coming months. Inventory rebuilding, after helping the economy recover from the worst recession since the 1930s, may contribute less to growth in coming months.

“The surge in ordering and production earlier in the year has replenished inventories to a more desirable level, and we should expect to see a far more modest contribution to growth coming from inventory accumulation,” Richard DeKaser, chief economist at Woodley Park Research in Washington, said before the report.

Economists forecast inventories would increase 0.4 percent, following a previously reported 0.5 percent gain in May, according to the median of 31 projections in a Bloomberg News survey. Estimates ranged from no change to an increase of 0.7 percent.

A separate report today from the Labor Department showed worker productivity unexpectedly fell in the second quarter and labor costs rose less than forecast. Productivity dropped at a 0.9 percent annual rate, the first decline since the end of 2008. The 0.2 percent gain in labor costs compared with a projected 1.5 percent rise, based on the median estimate in a Bloomberg survey.

Factory Inventories

Wholesalers make up about 30 percent of all business stockpiles. Factory inventories, which comprise more of the total, declined 0.1 percent in June, the Commerce Department said last week. Retail stockpiles, which make up the rest, will be included in the Aug. 13 business inventories report.

Today’s report showed wholesalers’ stockpiles of durable goods, or those meant to last several years, increased 0.3 percent in June, led by automobiles and electrical equipment.

The value of unsold non-durable goods fell 0.2 percent, while sales decreased 1.1 percent. Sales and inventories of petroleum products declined in June from the previous month.

At the current sales pace, wholesalers had enough goods on hand to last 1.15 months in June, up from 1.14 months in May. The inventory-to-sales ratio reached a record low of 1.13 months in April.

Contribution to Growth

The Commerce Department’s latest figures on gross domestic product showed the economy is getting less of a boost from inventories. Stockpiles added 1.1 percentage points to growth in the second quarter, less than the 2.64 percentage points contribution in the prior three months and 2.83 percentage points in the fourth quarter.

July data suggest companies are still adding to inventory. The Institute for Supply Management said last week that its factory inventory gauge rose to 50.2 while its headline manufacturing index fell to 55.5.

Manufacturers that export to China and other emerging economies remain optimistic.

Caterpillar Inc., the world’s largest maker of earthmoving equipment, on July 22 announced it was boosting its sales and revenue outlook, making it more likely dealers will want to increase inventories.

“Inventories have remained relatively flat all year long,” Mike DeWalt, director of investor relations, said on a conference call. “The higher sales are in our outlook range, the more likely it is that dealers will want to add some inventory.”

Carmakers may be keeping leaner inventories as demand has been slow to pick up. Ford Motor Co. reported U.S. sales in July that trailed analysts’ estimates as consumers limited large purchases.

“We are running with tighter inventories, and that is a positive for our dealers and it is a positive for us,” George Pipas, Ford’s chief sales analyst, said on a Aug. 3 conference call. “We certainly don’t want to get into an overstock position.”

URL to Original Article:
http://www.bloomberg.com/news/2010-08-10/u-s-wholesale-inventories-rise-less-than-estimated-0-1-sales-fall-0-7-.html