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Recovery indicator: Wholesale inventories rise

Tinned Sardines at wholesale prices - UCG Whol...

Image by avlxyz via Flickr

March wholesale inventories rose 0.4 percent compared with March of last year, roughly in line with expectations and a sign that businesses are restocking their shelves, the Commerce Department said moments ago.

Wholesale inventories are a key measure of economic recovery. Simply put: In a recession, businesses deplete their inventories because it costs money to store stuff and, because no one's buying things, businesses reduce their orders for product from factories.

This moves upstream. When businesses aren't ordering products, manufacturers don't make products. This means workers get laid off and company earnings drop. This holds true for manufacturers from automakers to toy-makers to toothpaste-makers.

March marked the third straight month of increasing wholesale inventories. Here's what you have to remember, however: Part of this inventory bump comes from stimulus spending that caused manufacturers to make more things in the fourth quarter of 2009. That's why fourth-quarter GDP jumped up so much (5.6 percent) and first-quarter GDP retreated a bit (3.2 percent).

Here's another good sign. According to the Commerce Department, the amount of goods on hand compared with sales dropped to the lowest level on record, meaning shopkeepers will have to order more product and manufacturers will have to make more product.

Now, we just need consumers to buy all the stuff that manufacturers are cranking out and businesses are putting on their shelves. With unemployment stubbornly hanging near 10 percent, that could be tough.

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By Frank Ahrens  |  May 11, 2010; 10:24 AM ET
Categories:  Data , The Ticker  | Tags: Business, Business and Economy, Economy, Gross domestic product, Inventory, Manufacturing, Recession, Wholesale  
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Comments

Keep shopping. Soon it will be July and the kids will all be playing with explosives again. It'll be fun!

Posted by: tossnokia | May 11, 2010 12:32 PM | Report abuse

My Business Management textbook says companies should try to keep inventories as low as possible. A rise in inventories is a warning that companies are doing a poor job meeting customers' demand.

Maybe my textbook is wrong. Maybe it's too old.

After all, today's > say that chronic deficits are good, too much debt is excellent, and Goldman's profits are proof that the recession is over.

Posted by: tropicalfolk | May 11, 2010 1:27 PM | Report abuse

tropical,
you're right, businesses should keep inventories as low as possible. But "as possible" is a moving target. You certainly need enough to make it through the weekend or whatever. And they'd been cutting those already-minimized inventories for a while. But this is a sign that they're willingly increasing their product stock. So yes, there's two ways to read this, but it appears that this is time for the good way.

Posted by: Section406 | May 11, 2010 1:50 PM | Report abuse

i dont think consumers will rush out and spend considering the unemplotment situation. it would be wiser to save and pay off the charge cards. eventually china will have our jobs and there will not be enough middle class consumers in america who can afford to buy the goods they make and sell at walmart. but take heart, wall street is doing fine, for now. wall street reform will be as compromised as the heath care bill. the over all trend is not good.

Posted by: hartland-badger | May 14, 2010 12:23 PM | Report abuse

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