Wholesale Inventories Unexpectedly Drop in May, Sales Up

Andrew Klips  |

The Commerce Department reported Wednesday that U.S. wholesale inventories, a key component of gross domestic product, dove 0.5 percent in May as wholesale sales rose 1.6 percent compared to April. It was the biggest monthly decline in inventories since September 2011.

The jump in sales and lack of restocking, may bode well for future production and even employment, but also could weigh on second quarter GDP if shelves aren't packed in June. In the first quarter, gross domestic product expanded a tepid 1.8 percent annual pace. Most economists believe the second quarter will be even slower.

Sales at merchant wholesalers rose to $424.6 billion, 4.1-percent higher than the May 2012 level.

Sales of durable goods increased 0.3 percent from April and 3.7 percent year-over-year. Sales of autos, parts and supplies also help the May gains with a 3.0 percent climb from April. Nondurable goods (+2.8 percent from April and 4.3 percent from May 2012) and apparel, piece good and notions (+5.3 percent from April and 3.8 percent from May 2012) also rose.

Dragging on wholesale sales were metals which dropped by 4.5 percent in May compared to April and were lower by 6.8 percent compared to last May.

The majority of businesses showed month-over-month and year-over-year improvement in sales. Lumber sales slipped 0.6 percent in relation to April, but were up a healthy 15 percent compared to last May.

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Total inventories dropped to $500.9 billion at the end of May, the second straight month of declines, catching economists off guard that were expecting a 0.3 percent rise. Compared to last May, inventories were up 3.3 percent. Inventories for both durable and nondurable items were down (-0.3 percent and -0.8 percent, respectively), compared to April.

The declines were spread across most businesses. Inventories for farm products paced the percentage declines, falling 6.0 percent from April and 6.3 percent year-over-year. Again, lumber was down compared to April (-0.4 percent), but up a strong 15.4 percent versus last year. Lumber sales and inventories evidence the growing housing market.

At the rate of sales in May and the stock on shelves, it would take 1.18 months to empty inventories, down from a stock-to-shipment ratio of 1.21 months in April and marking the lowest level since April 2012.

While investors look to this report from the Commerce Department to a degree, the bigger news is coming this afternoon with the minutes from the latest meeting of the Federal Reserve in June. The markets are wondering what is going to happen with the Fed's monetary stimulus plan and will be looking to sift through the minutes for hints of the Fed's direction.

About two hours into the trading day, the Dow Jones Industrial Average is down 27 points, the S&P 500 is off by 3 points and the tech-rich Nasdaq has edged upward by 1 point.

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