Factories Be Warned: U.S. Wholesalers Face an Inventory Glut
If wholesalers have anything to say about it, America's manufacturers may be in the doldrums for a while.
Sales of durable goods at U.S. distributors in January and February suffered the biggest two-month drop since the recession's last gasp in early 2009, figures from the Commerce Department showed Thursday in Washington.
As demand weakened, stockpiles built up, sending the inventory-to-sales ratio for those long-lasting goods up to an almost six-year high. Metals, machinery and professional equipment such as computers are among the products sitting in warehouses waiting for buyers.
That's an ominous sign for economists such as Michael Englund. Bloated stocks at wholesalers mean more order books at factories may be a bit leaner, which could leave manufacturing in a funk. Bookings for U.S.-made durable goods declined in three of the four months through February. The Institute for Supply Management's factory index has dropped for five consecutive months, reaching an almost two-year low in March.
Too-much inventory "certainly explains why the production-sentiment measures have been weak," said Englund, chief economist at Action Economics LLC in Boulder, Colorado. "They may stay weak for at least three to six months as we work through the displacement from the mining sector."
The plunge in oil prices has far-reaching effects beyond employment in the industry, Englund said. The machinery used to pump water and sand to facilitate hydraulic fracturing and the trucks used to transport materials such as pipes will also be in less demand for months to come, he said.