Wholesale Data: Less Bad Equals...Good?

Wholesale inventories are down more than expected, but it's not all bad news in the world of warehouses.
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Wholesalers are paring down inventories, more so than expected, as retailers continue to slash orders.

But April's 1.4% drop to $405.4 billion in inventories, the eighth straight month of a decline, isn't necessarily a worst-case scenario -- especially given that sales only fell slightly, by .4% to $309.4 billion. Economists had predicted a smaller 1.1% decline in inventories.

Granted, both numbers are negative, and no matter which way you mix those colors, they still paint a dreary picture: consumers are not shopping and retailers are slashing orders as a result.

But sales today are outpacing inventory production -- which should allow a clearing of backlog. Once retailers are able to get inventories in line and the economy starts to turn, a pent-up demand could result.

Another somewhat promising number was the ratio of inventories to sales, which stood at 1.31, meaning it would take 1.31 months to exhaust total stockpiles at the April sales pace. That ratio was 1.32 in March and 1.34 in January, but a far better 1.12 back in April 2008 -- so there's still significant room for improvement.

Inventories in the automotive sector, not surprisingly, were hit the hardest, tumbling 4.5% during the month. Sales in the sector sank 7.8%.

Stockpile of durable goods, which includes cars and refrigerators, decreased 2.2%, while sales were off 1.9%. Every other category of durable goods inventories fell.

Non-durable goods inventories were flat in April, and sales actually rose by .8%.

In other inventory news, import cargo volume at the nation's major retail container ports remained below the 1 million mark in April, making it the third slowest month in the past five years, according to the monthly Port Tracker report released by the National Retail Federation and IHS Global Insight.

"Retailers are still being cautious with their inventory levels in anticipation of slow sales this summer and into the fall," Jonathan Gold, NRF vice president for supply chain and customs policy, said in a statement. "The big question is what will happen during the fourth quarter. Our numbers for the fall are an improvement over the summer but are still slower than last year."

Indeed, while the numbers are beginning to creep up, it's when the volumes are compared to last year that the true scope of the recession is evident. U.S. ports handled 990,632 twenty-foot equivalent units in April, up 2% from March, but down 22% from the same time last year.

Looking forward, import volumes are projected to be 5.9 million during the first half of the year, down 21% from the first half of 2008.

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