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Economy in Brief

Wholesale Inventories Decline Despite Falling Sales
by Gerald D. Cohen  May 8, 2020

• Wholesale inventories decreased 0.8% in March, the third consecutive monthly contraction.

• Inventory to sales ratio jumps as sales fall 5.2%.

• While inventory swings can have a meaningful impact on GDP, in the current quarter they will be overwhelmed by shifts in demand.

Wholesale inventories declined 0.8% in March (-2.0% year-over-year), the third consecutive monthly decrease. The Informa Global Markets Survey anticipated a 1.0% contraction. Wholesale inventory swings can have a meaningful impact on GDP. First quarter inventories provided a 0.53 percentage point drag on GDP growth, while in the 2019q4 they had little impact. In the current quarter any inventory swings will be overwhelmed by shifts in the final sales components such as consumption and investment.

The 0.5% increase in durable goods inventories (-1.7% y/y) was more than offset by a 2.7% drop nondurable goods (-2.4% y/y). Drug inventories, which make up a quarter of nondurable inventories, fell 2.3% (+2.7% y/y). Groceries, the second largest category, declined 0.8% (+5.3% y/y).

Wholesale sales fell 5.2% during March (-5.2% y/y) slightly more than the 5.0% drop anticipated by Action Economics Forecast Survey. Durable goods sales dived 5.5% (-5.9) driven by a 14.3% reversal in autos (-11.4% y/y). Nondurable whole sales contracted 4.9% (-4.6%) as petroleum products plummeted 26.1% (-29.3% y/y) likely the result of falling oil prices. Interestingly, grocery wholesale sales decreased 1.4% in March (+0.8% y/y). Perhaps the drop in restaurant wholesale demand was larger than the increase coming from consumer stores.

The inventory-to-sales (I/S) ratio at the wholesale level jumped to a four-year high of 1.37 in March. The durable goods I/S ratio increased to 1.77, a level last seen in the 2009, during the Great Recession.. The I/S ratio for nondurable goods rose to 1.01.

The wholesale trade figures and oil prices are available in Haver's USECON database. The expectations figure for inventories is contained in the MMSAMER database. Expectations for sales are in the AS1REPNA database.

Wholesale Sector - NAICS Classification (%) Mar Feb Jan Mar Y/Y 2019 2018 2017
Inventories -0.8 -0.7 -0.6 -2.0 1.7 6.5 3.0
Sales -5.2 -0.7 1.3 -5.2 0.6 6.8 6.7
I/S Ratio 1.37 1.31 1.31 1.33 (Mar '19) 1.34 1.28 1.30
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