Wholesale Trade: Durable Goods Inventories Build as Sales Contract

Sales from merchant wholesalers increased 1 percent on the month to $440.1 billion in November and are now up 5.5 percent on the year, according to the latest Monthly Wholesale Trade report, which was released by the U.S. Census Bureau on Friday. The October preliminary estimate was revised upward by $600 million, or 0.1 percent.

Sales of durable goods were down 0.4 percent on the month but are up 4 percent on the year and accounted for about 45.5 percent of total sales. Sales of nondurable goods were up 2.1 percent on the month and are up 6.8 percent on the year, accounting for about 54.5 percent of total sales.

Wholesale inventories increased 0.5 percent on the month to $516.4 billion, up 3.3 percent on the year. The October preliminary estimate was revised downward by $300 million, or 0.1 percent. Inventories of durable goods increased 0.5 percent on the month and 4.2 percent on the year, account for about 61 percent of total inventories. Nondurable goods inventories increased 0.5 percent on the month and 1 percent on the year, accounting for about 39 percent of inventories.

Wholesale trade data can be useful to investors who want to gain some insight into into economic and business conditions. Having an idea of whether production is likely to increase or decrease in the future by looking at the inventory-to-sales ratio, investors can develop a better picture of the economic and business landscape against which they have to make decisions.

Economists and market participants can use the inventory-to-sales ratio to determine whether production will increase or decrease in the coming months. Production generally slows as inventories rise and firms need to work down the build, and production increases as inventory declines as firms work to avoid shortages.

Corporate profits naturally increase when production increases — that is, when sales increase and inventories need to build to keep up. When inventories build faster than sales, though, this can foreshadow a slowdown in production.

The inventory-to-sales ratio for November declined to 1.17 from 1.2 in October. The durable goods ratio is somewhat elevated at 1.57, while the nondurable goods ratio sits at 0.8.

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