U.S. wholesale inventories continued in February to put a brake on short-term economic growth but analysts expect a pickup in the second quarter as companies restock their shelves.
The Commerce Department said wholesale stocks fell 0.5% in February, marking the fifth-straight monthly decline and the sharpest drop since May 2013. Analysts polled by Reuters expected a 0.1% decline.
The government also revised its reading for January to show a 0.2% decline in inventories rather than a 0.3% rise.
Sales declined 0.2% in February, extending January’s revised 1.9% drop. The sales pace in February means it would take wholesalers 1.36 months to clear shelves, near the highest level since the recession.
“Companies have cut back on production to get inventories in line and avoid an excess buildup,” MarketWatch said. “While that’s good in the long run, it also means weaker growth now and suggests companies overestimated how well the economy was performing to start the year.”
The component of wholesale inventories that goes into the calculation of gross domestic product — wholesale stocks excluding autos — dropped 0.4% in February. “Economists generally expect the economy grew at less than a 1% annual rate in the first quarter, down from a 1.4% rate in the last three months of 2015,” Reuters said.
According to Reuters, weak inventories in the first three months of the year could lead to catch-up growth in the economy in the second quarter as companies restock their shelves.
“More often than not, a big increase in the inventory-to-sales ratio is accompanied by a recession,” Seeking Alpha said. “But a minority of the time, it is just an inventory correction.”