GO
Loading...

US Wholesale Inventories Rise, Sales Fall in May

Inventories held by wholesalers rose for a fifth consecutive month in May but sales fell for the first time in more than a year, sending a cautionary signal about the strength of the recovery.

AP

Wholesale inventories increased 0.5 percent while sales dropped 0.3 percent, the Commerce Department said Friday. It was the first decline for sales since March of 2009.

The May sales decline is the latest sign that the economic recovery could be losing momentum in the second half of the year. Weakness in sales could discourage businesses from boosting their orders. That would translate into a slowdown in factory production.

Businesses helped spur the recovery by rebuilding their inventories after slashing them during the recession. The gross domestic product expanded at a 5.6 percent rate in the final three months of last year, largely because of the swing in inventories.

The trend in inventory rebuilding continued in the first quarter of this year, but at a more modest pace. That was among the reasons growth slowed to 2.7 percent.

Mike England, an economist with Action Economics, said Friday's wholesale inventories report has persuaded him to lowest his growth estimate for the April-June quarter, to 2.8 percent from 3.3 percent. England expressed concerns about a revision to April's inventory growth that showed a 0.2 percent increase — half the initial estimate of 0.4 percent.

Many economists believe overall economic growth will slow to around 2 percent in the second half of this year. That's partly because they expect less of a boost from inventory rebuilding in coming months.

That could be bad news for manufacturers, one of the strongest sectors since the recession ended.

In recent months, both consumer spending and business hiring have slowed, and the housing market has struggled since government incentives for homebuyers ended in April.

The concern is that the recovery, which was already slower than the average upturn after a steep recession, could slow even more and the unemployment rate would remain elevated.

The jobless rate fell to 9.5 percent in June from 9.7 percent in May. But the change was largely the result of people giving up their work searches.

Even with the May gain in wholesale inventories, they are 2.1 percent below where they were a year ago.

Inventories at the wholesale level had fallen for 13 consecutive months through September of last year. Businesses went through a massive liquidation of their stocks in a struggle to contain costs during the deepest recession in decades.

The 0.3 percent drop in sales in May followed a gain of 0.9 percent in April.

The combination of declining sales and rising inventories pushed the ratio of inventories to sales up slightly to 1.14 in May from a record low of 1.13 in April. That means it would take 1.14 months to deplete stocks at the May sales pace.

Over the past decade, a typical level for the inventory to sales ratio has been between 1.15 months to 1.2 months.

Contact Economy

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More