April wholesale inventories fall 1.4 percent

Wholesalers slashed inventories more than expected in April as businesses struggled to get stockpiles in line with falling sales.

Still, analysts were slightly encouraged because sales dipped at a slower pace than in the previous month.

The Commerce Department said Tuesday that wholesale inventories fell 1.4 percent in April, more than the 1.1 percent decline that economists expected. It marked the eighth straight month that inventories dropped.

Sales at the wholesale level fell 0.4 percent in April following a 2.4 percent drop in March. Sales by wholesalers have fallen in nine of the last 10 months.

David Wyss, chief economist at Standard & Poor’s in New York, said he viewed the smaller sales decline as a “little sign” that sales are beginning to stabilize.

Domestic consumers, who pulled the U.S. out of the past two recessions by increasing their spending, also will be critical to a future recovery since export sales are expected to remain weak with foreign countries struggling through their own recessions.

The ratio of inventories to sales stood at 1.31, meaning it would take 1.31 months to exhaust total stockpiles at the April sales pace. That ratio had stood at 1.32 in March, and was 1.12 in April 2008.

The reduction in stockpiles held on shelves and back lots has contributed to the economy’s sharp contraction as factories have been forced to slash production in the face of falling demand.

The gross domestic product plunged at an annual rate of 5.7 percent in the January-March period after falling by 6.1 percent in the last three months of last year, the largest six-month decline in more than a half-century.

Economists hope that businesses are close to getting their inventories more in line with reduced sales levels. Once that occurs, businesses are expected to start increasing orders which will translate into stronger manufacturing activity.

That increased production is expected to be a key factor helping to end the recession, which began in December 2007 and is now the longest since World War II.

The 1.4 percent fall in wholesale inventories followed a 1.8 percent drop in March which was revised from an original estimate of a 1.6 percent decline.

Many economists believe that overall economic activity is falling between 2 and 3 percent in the current quarter with GDP expected to turn slightly positive in the third quarter.

Wyss said he expects the GDP to shrink by around 3 percent in the April-June quarter and then a smaller amount in the third quarter before turning positive in the fourth quarter.

“I think this is going to be a slow process because I don’t see the consumer coming back in a hurry given what we are seeing in the job market,” Wyss said. The government reported last week that the nation’s unemployment rate shot up to a 25-year high of 9.4 percent in May.

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.

While consumer confidence has improved a bit in recent months, those gains have not shown up in increased consumer spending, according to reports from many of the nation’s largest retail chains.

Excluding retail giant Wal-Mart Stores Inc., May marked the 10th straight month that same-store sales have fallen when compared with the year-ago period, according to a tally released last week by Goldman Sachs and the International Council of Shopping Centers.

Luxury chains and department-store operators continued to be the weakest sectors with Saks Inc. and Neiman Marcus reporting double-digit sales declines last month.

Copyright 2009 The Associated Press.