Ahead of the Bell: Wholesale Inventories

InventoryBusinesses likely increased inventories by a small amount in January, responding to a strong gain in their sales.
Economists surveyed by Thomson Reuters expect inventories at the wholesale level rose by 0.2 percent in January with sales rising by a stronger 0.7 percent. The Commerce Department will release the new report at 10 a.m. EST Wednesday.

Inventories are being closely watched because of a belief by economists that the current recovery can’t be sustained until businesses begin consistently restocking their depleted shelves. That restocking would mean higher orders to factories and growing demand for manufacturing workers.

The December results were not encouraging. Wholesalers slashed inventories by 0.8 percent in December, which was seen as a worrisome sign that companies are still too pessimistic about the future to begin restocking their shelves on a sustained basis.

Wholesalers hold 25 percent of all inventories with factories holding about one-third and retailers holding the rest.

Businesses slashed inventories during the recession as they struggled to control costs in the face of a deep recession and falling demand for their products.

But the economy got a huge boost in the final three months of last year from a sharp slowdown in the inventory liquidation process. That swing in inventories contributed two-thirds of the economy’s overall growth of 5.9 percent in the October-December period. While that huge boost was expected to be temporary, economists believe inventory rebuilding will keep contributing to growth in coming months.

Source: The Associated Press.