Wholesale Inventories Climb Twice as Much as Expected
A Bloomberg survey had expected September wholesale trade inventories to increase 0.7%, after a revised 1.2% rise in August (up from the initially estimated 0.8% increase) and a 1.5% increase in July.
Inventories are now up 7.9% compared to September 2009, and that's higher than the 5% year-over-year increase recorded in August.
A 1.18-Month Supply of Goods
Sales in September rose 0.4% to $353.9 billion and are now up 11.9% compared to a year ago, slightly lower than the 12.4% year-over-year rise recorded in August. However, economists are careful to point out that current year-over-year sales increases stem from a low recession-level base. So, large one-year gains are easier to achieve.
With inventories rising faster than sales, the inventory-to-sales ratio rose slightly, to 1.18 in September from 1.16 in August, which means companies had a 1.18-month supply of goods in stock at the September sales pace. An indicator of demand, the ratio was at 1.22 in September 2009, and it hit a record low of 1.13 months in April.
Inventories of durable goods -- products whose service life is several years -- increased 0.7%, and nondurable goods jumped 2.8% Among durable good, hardware inventories jumped 1.2%, autos increased 0.9% and furniture rose 0.7%. Lumber fell 1.6%, computer equipment declined 1% and professional equipment slipped 0.4%. And among nondurable goods inventories, farm products surged 14.8%, apparel jumped 4% and petroleum increased 3.4%, while alcohol fell 1.5% and groceries declined 0.7%.
Wholesale inventories account for about 40% of the U.S. business stockpiles, factory inventories about 38% and retail inventories about 22%.
A Higher Reading for GDP?
The results from September's wholesale inventory report are somewhat mixed. On one hand, the larger-than-expected 1.5% increase suggests that suppliers and businesses aren't as reserved heading into the important holiday sales season. The inventory rise will likely boost third-quarter U.S. GDP above the initially estimated 2% growth rate. But the gain also suggests a slight rise in imports, which will likely increase the U.S. trade deficit.
The Young Presidents' Organization gauge of U.S. sentiment climbed to 59.9 in October from 57.5 in July. Readings above 50 indicate a more positive than negative outlook. In the survey, 49% of the CEOs expect economic conditions to be better in six months, 60% expected sales to be higher in the year ahead and 38% expect to spend more in the year ahead.
Combine the inventory data with the more-optimistic CEO outlook, and the picture is one of slightly better conditions for U.S. commerce heading toward year-end, compared to 2009.