The Economy

Wholesale Inventories Drop 0.5% in October

The larger-than-expected decline could put a dent in Q4 GDP growth unless inventories rebound in November and December.
Matthew HellerDecember 8, 2017

U.S. wholesale inventories may not provide much of a boost to economic growth in the fourth quarter.

The Commerce Department reported on Friday that wholesale inventories dropped 0.5% in October after edging up 0.1% in September. The department had initially estimated that wholesale inventories declined 0.4% in October and economists surveyed by The Wall Street Journal had expected a 0.4% drop.

Wholesale stocks excluding autos — the component of wholesale inventories that goes into the calculation of gross domestic product — fell 0.5% in October.

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“Companies were not able to keep up with production owing to a combination of growing demand and supply disruptions caused by hurricanes in the prior month,” MarketWatch said.

Inventories are up 3.9% year over year, however, and wholesale sales jumped 0.7% in October after surging 1.4% in September. At October’s sales pace, it would take wholesalers 1.25 months to clear shelves, down from 1.26 months in September.

Inventory investment contributed eight-tenths of a percentage point to the economy’s 3.3% annualized growth pace in the third quarter. Economists are expecting GDP growth of around 2.7% in the fourth quarter, with consumer spending remaining strong and business investment in equipment picking up.

“If inventories don’t recover in November and December, it would dampen fourth-quarter GDP,” MarketWatch said.

Auto inventories fell 0.7% in October after a similar decline in September. There were also decreases in inventories of computer, electrical and professional equipment, among others.

Sales of motor vehicles jumped 3.4% in October after rising 0.8% the prior month, reflecting the replacement of vehicles damaged by the recent hurricanes.

“Rising household wealth and income, further job gains (albeit at a reduced rate), and credit utilization are underpinning consumer spending,” Kiplinger reported this week. “However, expect motor vehicle sales to slow significantly once flood-related replacement buying tapers off.”