US Wholesale Inventories Rise Sharply; Sales growth slowed

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WASHINGTON, Jun 8 (Reuters) – US wholesale inventories rose slightly more than originally thought in April, suggesting that inventory investment could boost economic growth this quarter.

However, the increase in inventories reported by the Commerce Department on Wednesday came as sales growth slowed.

Amid rising recession fears next year, inventories will come under close scrutiny as the Federal Reserve hikes interest rates to dampen demand as it fights high inflation. Major US retailers, including Walmart (WMT.N) and Target (TGT.N), said last month they were overstocking.

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Wholesale inventories rose 2.2% instead of 2.1% as reported last month. Data for March has been revised upwards to show that inventories at wholesalers rose 2.7% instead of the 2.3% previously reported. Economists polled by Reuters had expected April inventories not to be revised.

Wholesale inventories rose 24.0% yoy in April. Inventories are an essential part of gross domestic product. Wholesale auto inventories rose 1.3% after accelerating 2.4% in March. Wholesale apparel stocks rose 6.4% after rising 4.0% in March.

Wholesale inventories ex-autos rose a solid 2.2% in April. This component is included in the calculation of GDP.

Strong wholesale inventory building complemented Tuesday’s news that April’s trade deficit narrowed by the most in nearly 9-1/2 years, bolstering expectations for a recovery in GDP this quarter. Continue reading

A record trade deficit and a slower rate of inventory building compared to the buoyant pace of the fourth quarter weighed on output, causing GDP to fall at an annualized rate of 1.5% in the January-March quarter. Growth estimates for the second quarter are up to 4.8%.

Businesses rushed to replenish inventories after running out as the economy recovered from disruptions from COVID-19. Some economists worry that slowing demand could lead to an inventory overhang that could trigger a recession.

Sales at wholesalers rose 0.7% in April after rising 1.8% in March. Sales at clothing wholesalers fell 4.4% after rising 5.4% in March.

At the pace of sales in April, it would take wholesalers 1.25 months to clear shelves versus 1.23 months in March. Still, the inventory-to-sales ratio is well below the pre-pandemic average of about 1.35 months. The inventory-to-sales ratio at apparel wholesalers rose to 2.42 months from 2.17 months in March.

“These metrics and others like them will be critical in the coming months as the US economy continues to work toward balancing supply and demand,” said Matt Colyar, an economist at Moody’s Analytics in West Chester, Pennsylvania.

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Reporting by Lucia Mutikani Editing by Chizu Nomiyama

Our standards: The Thomson Reuters Trust Principles.

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