Recovery indicator: Wholesale inventories rise
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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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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