Wholesale Inventories Rise, but at Unimpressive Rate

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Inside a Liquor Distribution Warehouse Ahead of Business Inventories Data
Daniel Acker/Bloomberg via Getty Images
By Lucia Mutikani

WASHINGTON -- U.S. wholesale inventories rose less than expected in December, suggesting a moderation in the pace of stock accumulation at the end of the year that could see fourth-quarter growth estimates trimmed.

The Commerce Department said Tuesday wholesale inventories increased 0.3 percent after an unrevised 0.5 percent gain in November.

Economists polled by Reuters forecast stocks at wholesalers rising 0.5 percent in December. For all of 2013, wholesale inventories increased 3.9 percent.

Inventories are a key component of gross domestic product changes. Excluding autos, wholesale inventories advanced 0.3 percent in December. %VIRTUAL-article-sponsoredlinks%The component goes into the calculation of GDP.

The government in its advance estimate for fourth-quarter GDP said inventories increased $127.2 billion, the largest rise since the first quarter of 1998.

The change in inventories from the third quarter added 0.42 percentage point to the fourth-quarter's 3.2 percent annualized growth rate, confounding economist expectations for a slower pace of restocking, which would have weighed on output.

That left economists anticipating that GDP would be lowered by at least 0.4 percentage point to 2.8 percent when the government publishes its second estimate later this month.

Economists believe the current level of inventory is unsustainable and expect businesses will step back to work through current stocks in the first quarter, which would restrain growth in the first three months of 2014.

Sales at wholesalers rose 0.5 percent in December, compared to a 1.0 percent increase the prior month. December's increase was in line with expectations.

At December's sales pace it would take 1.17 months to clear shelves, unchanged from November.

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Wholesale Inventories Rise, but at Unimpressive Rate
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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