Wholesale Inventories Cut for 12th Straight Month

Businesses cut back on inventories for a record 12th consecutive month in August. The 1.3% reduction follows a 1.4% drop in July, and together they pushed the annual drop to 14.7%.

The drop was worse than Wall Street forecasts of a 1% cut, but the other half of the report was more positive as sales jumped for the fifth straight month. The 1.0% gain is the biggest gain since June 2008, and it follows an upwardly revised but still modest 0.1% gain in July. Since August 2008, sales are down 17.7%. 

Equity markets fell in minutes following the report but quickly recovered. Interpreting the report can be tricky as the decline itself hurts Q3 GDP, but the more businesses slash inventories the more rapidly they will have to restock once they are confident of an economic rebound.

The inventories to sales ratio was 1.20, compared with the August 2008 ratio was 1.16.

“Looking ahead, inventories will continue to fall,” said Ian Shepherdson from High Frequency Economics. The ratio of inventories to sales of wholesale durable goods remains elevated, so there is not chance of any absolute increase in inventory any time soon.”

Details:

Sales:

August sales of durable goods were up 1.2% in August, but were down 18.8% from a year ago. Sales of motor vehicles, parts & supplies were up 7.7% in the month, and sales of electrical & electronic goods were up 2.5%. Sales of nondurable goods were up 0.9% in the month but were down 16.7% from last year. Sales of petroleum climbed 7.0%.

Inventories:

End-of-month inventories of durable goods were down 1.6% in August and were down 15.5% from a year ago. Inventories of metals and minerals, except petroleum, were down 4.3% in the month, and inventories of motor vehicle & parts were down 2.3%. End-of-month inventories of nondurable goods were down 0.9% in August and down 13.3% from a year ago. Inventories of paper and paper products were down 2.1% from last month, and inventories of drugs and were down 1.9%.

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