Wholesale Inventories Climb Twice as Much as Expected

Updated
wholesale inventories climb
wholesale inventories climb

U.S. wholesale trade inventories unexpectedly rose 1.5% in September to $417 billion, the U.S. Commerce Department announced Tuesday. The gain suggests that suppliers and businesses expect a decent holiday sales season.

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.

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Separately, U.S. CEOs' confidence rose at the start of the fourth quarter, with more of them forecasting stronger sales and spending on equipment, according to a business survey.

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.

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