Wholesale Inventories Fall In October As Sales Rise

Date: December 12, 2016

Inventory To Sales Ratio Remains Relatively High

The Commerce Department reported on Friday that wholesale inventories fell 0.4 percent in October, while sales at the wholesale level increased 1.4 percent. NASDAQ reports the decrease in inventories was in line with forecasts, while the AP reported it was “the largest drop in eight months.” The AP characterized the decrease as “a trend that could boost demand for factory goods in the months ahead.” Wholesalers of computer products, pharmaceuticals, and steel and other metals “led the cutbacks.” Reuters says the report supports “views that inventory investment would provide a modest boost to economic growth in the fourth quarter.” In addition, the component “of wholesale inventories that goes into the calculation of GDP – wholesale stocks excluding autos – also fell 0.4 percent in October.” Investment in inventories added one half of a percentage point to the third quarter’s 3.2 percent growth in gross domestic product, but Reuters notes that with “a report this week showing stocks at manufacturers were unchanged in October, economists believe inventories’ contribution to growth in the fourth quarter will be modest.” The ratio of sales to inventory shows wholesalers would exhaust their stocks in 1.30 months, down from 1.32 months the month prior. While an improvement, the ratio remains high from a historical perspective, which suggests inventory will only modestly add to GPD in the coming quarters.

What This Means For Small Businesses

Higher sales and a drop in inventories indicate that both businesses and consumers are spending more, which suggests improvement in the broader economy. The positive news, while modest, portends a stronger environment for small businesses in coming quarters.

Additional Reading

RTT News also reports the story.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

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