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One Falls, One Rises: July wholesale figures point to economic growth
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Published: September 12, 2009
WASHINGTON
Businesses reduced inventories at the wholesale level for a record 11th consecutive month in July, although sales rose by the largest amount in more than a year, sparking hope for better days ahead.
Economists expect that some modest restocking triggered by the higher sales helped boost the economy out of recession in the current quarter. Some analysts said that the economy could rebound to growth approaching 4 percent, after it fell at a 1 percent rate in the April-June period.
The Commerce Department reported yesterday that wholesale inventories declined 1.4 percent in July, more than the 1 percent drop economists expected. That decline followed a 2.1 percent fall in June, worse than the 1.7 percent drop originally reported.
Sales at the wholesale level rose 0.5 percent in July, the fourth consecutive increase and the biggest gain since a 2 percent increase in June 2008.
Jennifer Lee, an economist at BMO Capital Markets, said that the rebound in sales was encouraging and should help persuade businesses to restock their shelves and back lots. That swing in inventories should play a major factor in boosting the economy out of a recession in the current quarter.
The overall economy, as measured by the gross domestic product, will grow at a 3.8 percent annual rate in the current July-September period, Lee forecast. The economy posted declines of 5.4 percent and 6.4 percent in the fourth and first quarters respectively, the worst performance in 50 years.
"For the second half of this year, things are looking better than they were a few months ago with activity being helped by stimulus efforts such as the ‘Cash for Clunkers' program," Lee said.
Economists are worried, however, that the economy will slip back to weaker growth beginning next year as the effect of various stimulus programs dims and the unemployment rate keeps rising, depressing consumer incomes and their willingness to spend.
Still, more positive news came yesterday when consumer confidence, as measured by the University of Michigan-Reuters survey, rose more than expected to a reading of 70.2 in early September, compared with 65.7 in August.
"With hope comes more spending, and with more spending comes more production," Lee said.
On Wall Street, stocks slipped in quiet trading after the recent string of gains and a drop in oil prices. The Dow Jones industrial average fell 22.07, or 0.2 percent, to 9,605.41. The broader Standard & Poor's 500 index fell 1.41, or 0.1 percent, to 1,042.73, and the Nasdaq composite index fell 3.12, or 0.2 percent, to 2,080.90.
Wholesale inventories are goods held by distributors who generally buy from manufacturers and sell to retailers. They make up about 25 percent of all business stockpiles. Factories hold another third of inventories, and retailers hold the rest.
The July inventory drop left the inventory to sales ratio at 1.23, meaning it would take 1.23 months to exhaust stockpiles. That was slightly lower than the 1.25 ratio in June, but still above the 1.13 inventory to sales ratio of a year ago.
The rise in sales at the wholesale level comes amid continued weakness at many retail establishments, which reported lackluster back-to-school sales in August. However, automakers saw a spurt in activity from the clunkers program.
Ford Motor Co., Toyota Motor Corp. and Honda Motor Co. all reported increased sales in August as consumer snapped up their fuel-efficient models. But rivals Chrysler Group LLC and General Motors Co., which have just emerged from bankruptcy protection, saw their sales fall for the month.
The 11th straight drop in wholesale inventories is the longest stretch on records that date to 1992, surpassing the old mark of nine straight decreases from June 2001 to February 2002, a period that covered the last recession.
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