Wholesalers pared back inventories in January Reduction may indicate anticipation of slowdown

Economy

March 12, 1998|By BLOOMBERG NEWS

WASHINGTON -- Inventories of goods at U.S. wholesalers fell in January for the first time in six months, an early sign businesses may be paring down their stocks in anticipation of declining demand later this year.

Wholesale inventories unexpectedly fell 0.5 percent, while sales rose 0.3 percent, Commerce Department figures yesterday showed.

A slowdown in inventory accumulation -- including those at retailers and factories -- is likely to hold down growth this year after a buildup in stocks gave a boost to the economy in 1997, said Bruce Steinberg, chief economist at Merrill Lynch & Co. in New York. At the wholesale level, U.S. exporters expect to have problems selling their goods in Asia and are working to keep their stocks in line.

"The shock of the Asian contraction, along with excess inventories, is leading to a sharp slowdown in 1998 growth," Steinberg said. The U.S. economy will expand by 2.4 percent this year, he said, below last year's 3.8 percent pace.

The full effects of the expected slowdown aren't likely to appear until later this year. For the current quarter, strong job creation and consumer spending are expected to keep growth at about 3 percent. For example, analysts expect tomorrow's report on February retail sales to show a 0.6 percent increase, the biggest in seven months.

Still, investors are counting on slower growth to hold inflation in check, and keep Federal Reserve policy-makers from changing the overnight bank lending rate.

Wholesale inventories make up about a third of total U.S. stocks on hand, with retail and factory stocks accounting for the rest. Tomorrow, the Commerce Department will release a more complete report on total inventories for January.

In the wholesale report, the inventories-to-sales ratio, which measures the time goods sit at wholesalers, fell to 1.27 months during January from 1.28 months in December. The ratio is still above last year's low of 1.22 months, reached in February 1997. And analysts said if the ratio grows in the coming months, that would mean wholesalers may have to reduce their stocks.

January's decline in wholesale inventories followed a string of five monthly increases in wholesale inventories, a buildup that could pose problems down the road if demand drops.

If inventories and the inventory-to-sales start rising again, "wholesalers will have to do [more] to bring it under control later this year," said Christopher Low, an economist at HSBC Securities Inc. in New York.

Among major industries in the wholesale report, inventories of big-ticket or durable goods, increased 0.3 percent after rising 1.2 percent in December.

Pub Date: 3/12/98

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