June Wholesale Inventories in U.S. Decrease as Sales Plunge

Inventories at U.S. wholesalers unexpectedly dropped in June as distributors suffered the biggest decrease in sales in three years.

The 0.2 percent decline in stockpiles, the biggest since September, followed no change in May, the Commerce Department reported today in Washington. Sales plunged 1.4 percent, the most since March 2009.

Businesses may be cutting inventories in line with slowing demand as wholesalers had enough goods on hand to last 1.2 months at the current sales pace, the most since December 2009. Weak consumer spending and fiscal worries in the U.S. may be making businesses cautious about growing stockpiles.

“Businesses are not going to want to be accumulating inventories going into year-end,” Mike Englund, chief economist at Action Economics in Boulder, Colorado, said before the report.

The median estimate in a Bloomberg survey of 26 economists called for a 0.3 percent gain. Forecasts ranged from unchanged to an increase of 0.6 percent.

Other reports today showed fewer Americans filed applications for unemployment benefits last week and the trade deficit shrank more than forecast in June.

Jobless claims dropped by 6,000 to 361,000 in the week ended Aug. 4, Labor Department figures showed. The median forecast of 43 economists surveyed by Bloomberg News called for an increase to 370,000.

Trade Deficit

The trade deficit in the U.S. shrank to $42.9 billion in June as imports dropped and exports climbed, according to figures from the Commerce Department.

Wholesalers make up about 30 percent of all business stockpiles. Factory inventories, which comprise about 38 percent of the total, rose 0.1 percent in June, the Commerce Department said on August 2. Retail stockpiles, which make up the rest, will be included in the August 14 business inventory report.

Wholesalers’ inventories of durable goods, or those meant to last several years, increased 0.2 percent as sales dropped 0.7 percent, today’s report showed. Stockpiles of machinery climbed 1.1 percent, reflecting a 2.8 percent decline in sales, the biggest since October 2009.

Stockpiles of non-durable goods, which are often influenced by swings in prices, decreased 0.8 percent in June while sales slumped 1.9 percent.

Companies have added to inventories at a $64.6 billion at an annual pace on average over the past three quarters, the most over a similar period since the first nine months of 2006, according to Commerce Department data released prior to today’s report. That may make it difficult for additional stockpiling to add to growth in the second half of 2012.

U.S. Growth

The world’s largest economy expanded at a 1.5 percent annual rate in the second quarter, with inventories contributing 0.32 percentage point to gross domestic product, according to data from the Commerce Department.

Today’s wholesale report will probably shave last quarter’s contribution to growth from inventories.

Lumber companies, which were particularly stung by the U.S. housing slowdown, are starting to report increased demand.

“We are beginning to see real improvement in housing activities; excellent affordability, positive moves in home values in many metro markets,” said Rick Holley, president and chief executive officer of Plum Creek Timber Co. Inc. in Seattle, Washington. “As the economy and housing activity continues to recover, this will ultimately translate into higher prices for timber and growth in our income and cash flow.”

Holley, speaking on a July 30 earnings call, said businesses remain worried about U.S. tax and spending policy.

‘That’s kind of an overhang on business today, both of those things, and until we see more certainty with either, I think there will be some hesitancy of American business to really make investments,” Holley said. “But clarity on those two areas is going to help everybody in 2013.”

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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