Businesses Keep Wholesale Inventories Low as Retail Sales Rise
by Christina Lee on February 17th, 2009
Wholesale inventories dropped further than expected by economists, continuing a streak of declines that has not been seen in seven years.
Inventories in December 2008, totaling $427.5 billion, fell by 1.4 percent from the previous month, according to the Commerce Department. Analysts predicted a decline only about half as big, with predictions ranging from 0.7 to 0.9 percent, according to the Associated Press and Wall Street Journal.
“This is the latest evidence of the difficult environment for business spending in the fourth quarter,” said Tim Quinlan, economic analyst at Wachovia in Charlotte, North Carolina, to Reuters.
Even as overall inventories declined for the fourth month in a row, some levels remained higher than they had been in the previous year. For example, while inventories of durable goods experienced a 1.4 percent month-to-month decline, they still ended up 6.8 percent higher than in December 2007. On the other hand, levels of non-durable goods dropped by 1.5 percent, to levels 2.0 percent lower than last year.
Wholesale sales also dropped by 3.6 percent over the course of the month, to a level 10.7 percent lower than seen in December 2007. But then retail sales – excluding that of automobiles, gas stations and restaurants – increased by 0.5 percent in January, according to the National Retail Federation.
General merchandise sales led other categories, with a 1.1 percent seasonally adjusted increase from last month and a 3.5 percent unadjusted increase from 2007. Meanwhile, health and personal care sales remained flat from last month, though they still stood at levels 3.5 percent higher than last year.
Overall, the surprisingly positive news still serves as notes of caution for economists. They realize that while retail sales are rising, they are still lower than they were last year. Furthermore, the still-high ratio of sales to inventories indicates how the retail environment is still trying to recover from a slow holiday season.
“While 2009 got off to a surprising start, it’s going to be difficult for retailers to maintain this momentum,” said Rosalind Wells, chief economist at the National Retail Federation, in a statement. “We expect the first half of the year to present challenges while giving way to sustained growth in the fourth quarter.”