Wholesale Inventories Rise As Sales Decline

Unwanted build is the news from the August wholesale trade report where inventories swelled by 0.7 percent against a very sharp 0.7 percent decline in sales. The mismatch drove the stock-to-sales ratio in the sector up 2 notches, to 1.19 from 1.17 for the heaviest reading since February.

Much of the build is tied to autos where inventories rose 0.6 percent while sales fell 0.5 percent. Large builds for autos were welcome in prior months given the very solid strength for sales, but manufacturer sales in September fell which points to the risk of another unwanted build underway. Excluding autos, the wholesale sector's stock-to-sales ratio rose only 1 notch, to 1.15 from 1.14. Other sectors besides autos showing heavier inventories include farm products, lumber, professional equipment, and petroleum products where sales fell very sharply.

In data released last week with the factory orders report, inventories also rose relative sales. For the economic outlook, heavy inventories are a negative for future production and future employment. Retail sector data will be released next Wednesday with the business inventories report.

Recent History Of This Indicator:
Wholesale inventories proved much lower than expected, with a 0.1 percent rise in July. But this was good news given a very strong 0.7 percent rise for wholesale sales that pulled down the stock-to-sales ratio one notch to a very lean 1.16 from 1.17. Low inventories point to the need for restocking while strong sales point to strong demand from the retail sector. Wholesale inventories of farm products and computer equipment fell sharply in the month as did inventories of petroleum products. On the build side were apparel and drugs as well as autos where manufacturing output has been rising to meet strong retail demand.