Wholesale inventory gains bode well for 1Q

By Reuters
Posted March 9 at 12:29 p.m.

U.S. wholesale inventories rose in January and sales set their fastest pace in 14 months, suggesting restocking and strong demand would lift the economy in the first quarter.

Total wholesale inventories rose 1.1 percent, to $436.88 billion, the highest level since November 2008, the Commerce Department said Wednesday. It revised December inventories up 1.3 percent.

At the same time, sales at the wholesale level jumped 3.4 percent, the largest gain since November 2009, and December’s increase was revised higher as well.

A slowing pace of inventory accumulation had weighed on U.S. economic growth in the fourth quarter, but a need to restock shelves should help spur more production. The rise in inventories also offers a signal that businesses expect further sales growth ahead.

Economists, who had expected inventories to rise 0.8 percent and sales to gain only 0.5 percent, said high petroleum prices might have contributed to the above-forecast reading, which is not adjusted for inflation.

Still, the data suggested the economy’s growth prospects were solid though harsh winter weather held back the recovery at the start of the year.

“It does suggest the nominal economy into the first quarter was posting some pretty solid growth,” said Mike Englund, chief economist at Action Economics in Boulder, Colo. “Whereas before people might have seen some downside risk to GDP in the first quarter, we think the risk is now back to the high side.”

Most economists expect first-quarter gross domestic product growth of about 3.5 percent.

Given the upward adjustment to December’s wholesale inventories reading, economists said the government would likely revise up its measure of fourth-quarter GDP growth to a near 3.2 percent annual rate from the 2.8 percent reported last month.

The Commerce Department will publish its final estimate for fourth-quarter gross domestic product March 25.

January’s trade data scheduled for release on Thursday and a report on Friday on overall business inventories, which includes retail stocks, will shed more light on the size of the potential revision to fourth-quarter GDP growth, as well as the outlook for the current quarter.

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