The Economy

Wholesale Inventories Fall 0.1% in October

Businesses trimmed stockpiles of unsold merchandise after a record back-to-back increase in inventories in the first two quarters of this year.
Matthew HellerDecember 9, 2015

New data from the U.S. Commerce Department suggest inventories will be a more severe drag than expected on economic growth in the fourth quarter.

Wholesale inventories slipped 0.1% in October as businesses stepped up efforts to reduce stockpiles of unsold durable and nondurable goods. September inventories were revised down to show them increasing only 0.2% instead of rising 0.5% as previously reported.

The component of wholesale inventories that goes into the calculation of GDP, wholesale stocks excluding autos, also dipped 0.1%.

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“We think that the drag from inventories in the fourth quarter will be more severe than we had previously believed,” Daniel Silver, an economist at JPMorgan in New York, told Reuters.

October”s drop prompted economists to trim their fourth-quarter growth estimates by as much as two-tenths of a percentage point to a 1.7% rate.

“A record back-to-back increase in inventories in the first two quarters of this year left warehouses bulging with unsold merchandise and businesses with little appetite to restock,” Reuters noted.

Inventories subtracted 0.56 percentage point from GDP growth in the third quarter, restricting growth to an annualized rate of 2.1%. Given the downward revisions for September, economists expect the estimate for third-quarter GDP will be lowered to 1.9% when the government publishes its second revision later this month.

Data last week showed manufacturing inventories fell for a fourth straight month in October. “Retail inventory data on Friday could shed more light on the magnitude of the anticipated inventory drag in the final three months of the year,” Reuters said.