Sales by Wholesalers Outpace Inventories
Sales by U.S. wholesalers far outpaced their buildup of inventories in June, leaving their supplies at the lowest level relative to their business activity in two years, the Commerce Department said Monday.
Wholesale sales jumped 1.9% in June, their biggest gain since January 1997, to a seasonally adjusted $228.12 billion after another strong gain of 1.8% in May, the department said. Inventories rose 0.3% to $291 billion after a 0.2% increase in May.
Warehouses had enough goods to last 1.28 months, the smallest inventory-to-sales ratio since July 1997. That probably means companies will have to order more goods, which will add to economic growth in the third quarter, analysts said. Faster growth could be the incentive for Federal Reserve policymakers to raise interest rates to ward off higher inflation.
“It still looks like inventories are too low,” said Diane Swonk, chief economist at BankOne Corp. in Chicago. She raised her expectation for third-quarter gross domestic product to 4.1% from 3.2%, largely because she sees inventories rising.
Nor are wholesalers’ inventories the only ones shrinking. In the last eight months, U.S. factory inventories have fallen seven times, including a 0.1% decline in June. “This sets us up for a very strong second half,” Swonk said.
Wholesale inventories account for less than a third of all U.S. stocks of merchandise, with factory and retail inventories rounding out the rest. The Commerce Department will include retail stockpiles in its business inventory and sales report Friday.
Monday’s report showed increased sales in most categories of goods. The biggest gains were in petroleum and farm products.
Businesses also are expected to build their stocks before the end of the year to avoid disruptions that may be caused by year 2000 computer glitches. Moreover, businesses may order more supplies to avoid further price increases for intermediate goods such as milled steel used by appliance makers. Prices for intermediate goods, excluding food and energy, rose 0.5% in June.
“For so long, a business could say, ‘I don’t need to buy this today; prices may be lower tomorrow’,” said economist Paul Kasriel at Northern Trust Co. in Chicago. “They can’t say that now.”
Even if companies rebuild stockpiles in the second half, slow inventory growth or even declines may become more usual. Streamlined management means companies can keep fewer goods in their warehouses. Networked computers and other methods enable companies to bypass wholesalers and ship directly to retailers.
Total business inventories once swung between increases and decreases in the double-digit percentages. Since 1996, changes have been more moderate, with growth between 2% and 5%.
Separately Tuesday, a Chicago-based employment firm reported that the number of planned job cuts by U.S. businesses rose in July from the same month last year.
Challenger, Gray & Christmas said businesses announced plans to cut 54,709 jobs last month, 7.8% more than the 50,774 cuts announced in July 1998. However, July’s announced cuts were 14% lower than the 63,397 announced in June, Challenger said.
Last month marked the 16th month in a row in which job cuts have been higher than in the same month the previous year.
