Wholesale sales up 1.2%

inventories fall

Measures suggest rise in factory output likely

March 12, 2002|By BLOOMBERG NEWS

WASHINGTON - Sales at U.S. wholesalers posted the largest gain in 19 months in January and inventories fell, a sign that further demand may have to be met by increased factory production.

The 1.2 percent increase in sales after a 0.5 percent drop in December was the first since August and the biggest since June 2000, the Commerce Department reported yesterday. Stockpiles fell for an eighth consecutive month in January. The 0.2 percent decline after a drop of 0.5 percent in December brought the value of inventories to a two-year low of $287.7 billion.

"Sales are so strong that inventories are getting even thinner," said Joseph LaVorgna, a senior economist at Deutsche Bank Securities in New York. "You are going to get more production, employment and income growth because inventories are going to be rebuilt."

The sales gains drove down the inventory-to-sales ratio, a measure of how long goods remain on storeroom shelves, to 1.28 months, the lowest since March 2000. February sales at U.S. retail chains, including Best Buy Co. and Wal-Mart Stores Inc., already have posted the biggest monthly gain in almost two years, private reports show.

Factories, wholesalers and retailers pared inventories by a record $120 billion at an annual rate from October to December, according to previous data from the Commerce Department. Consumer spending grew during the quarter at a 6 percent annual rate, the fastest in 3 1/2 years.

Wholesalers account for about one-fourth of all business stockpiles. Retailers and factories account for the rest. Last week, the Commerce Department reported a 0.6 percent decline in January factory inventories, the smallest decrease in eight months, after a 0.9 percent drop a month earlier.

The economy entered into recession one year ago this month as business investment fell and companies reduced stockpiles. The rebuilding of inventories may contribute to the expansion.

"Stocks in many industries have been drawn down to levels at which firms will soon need to taper off their rate of liquidation, if they have not already done so," Federal Reserve Board Chairman Alan Greenspan said in testimony before the Senate last week. "The lift to income and spending from the inevitable cessation of inventory liquidation could be significant."

Analysts surveyed by Bloomberg News had expected wholesale inventories to drop 0.4 percent in January, according to the median of 23 forecasts, after a previously reported decline of 0.6 percent a month earlier.

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