February wholesale inventory drop may be another 'green shoot'

Perhaps this is another one of those 'green shoots' in the economy that Fed Chair Ben Bernanke is talking about.

Wholesale inventories declined for the first time in eight months in February, falling 1.5 percent, the U.S. Commerce Department announced Wednesday (pdf), with the overall drop in relation to sales perhaps suggesting that previous production cutbacks are taking effect. Meanwhile, February sales increased 0.6 percent. Economists surveyed by Bloomberg News had expected wholesale inventories to drop by only 0.7 percent.

The inventory drop and sales rise pushed the inventory-to-sales ratio – an indicator of how lean or full inventories are – down to 1.31 from 1.34 in January. It was the first decline for the ratio since June 2008. In February, the ratio was as 1.14.

"Wholesalers are drawing down their inventory levels because their shipments to retailers have collapsed," Steven Wood, president of Insight Economics LLC in California, told Bloomberg News Wednesday. "As a result, they have sharply reduced their orders from manufacturers, both domestically and internationally."

Economic Analysis: Businesses are cutting back on production and new orders as they attempt to bring goods back into balance with decreased demand. Over time, that will eliminate excess supply, setting the stage for a production rebound and new hiring.
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