A Silver Lining in Lower Wholesale Inventories

February’s Wholesale Inventory data from the U.S. Commerce Department shows a continued trend of wholesale product inventories being pruned yet again.   The reading came in at -1.5% for February, compared to estimates of  only -0.6%.  Seasonally adjusted, this was $419.3 billion.  This might be the biggest drop yet.  We also saw a revision for January to -0.9%,  rather than the -0.7% originally reported.

The sales portion of domestic wholesalers rose by +0.6% to an adjusted $319.73 billion.  We have not seen a gain in sales on the wholesale inventories in more than six months.

The year-over-year data shows just how dismal things have been.  These inventory numbers are down 1.7% from February 2008, but sales were down by more than 14% from February 2008.

What you are seeing is evidence of wholesale deflation, or at least discounting to clear inventories out.  All of this ties in with lower production, lower demand, lower retail sales, negative GDP, and fewer end-buyers because of more and more getting in the unemployment lines.

There is also a good bit here, but you’ll have to be patient before the good news gets delivered.  The worst sort of recession you can have is where sales are down, production is down, and inventories keep rising.  That would be indicative of ship-backs and zero sell-through.  So, the inventory is being worked off.  This means that when the economy shows any signs of life that there could be a surge through all levels of the wholesale economy from basic materials to production to distribution.

Still, we have to be patient.  The recent warnings on the transportation side of the equation are showing that this is not quite happening yet.

Jon C. Ogg