Wholesale Inventory Decline Moderates

Wholesale inventories fell 0.9% in September compared to the previous month, slightly above the consensus estimate of -1.0%. Inventories fell 1.3% in August.

The rate of decline in inventories is decreasing, which is why the change in inventories showed up as a positive contribution to GDP in Q3.

We expect the decline in inventories to continue to moderate as expected consumer demand starts picking up through the economic recovery.

Most economists continue to look at the inventory restocking cycle as the key component to sustainable GDP growth in 2010. Inventory growth, however, is not labor intensive and typical does not result in increased employment.

Instead, the increase in future GDP will be more of a statistical aberration as the economy, and most importantly the consumer, continues its slow transition between recession and recovery.

Both durable and nondurable good wholesalers inventories declined 0.9%.

The automotive sector inventories increase 0.3% as manufacturing deliveries are making up for the drop-off in sales following Cash for Clunkers.

Wholesale sales increased 0.7% after increasing 1.1% in August. Sales were hampered by the pullback in motor vehicle sales. Excluding automotive products, wholesale sales rose almost 1.0%.

The inventory-to-sales ratio fell to 1.18, slightly below the 1.20 ratio found in August. The ratio is now at the same level as in September 2008.

We expect the inventory-to-sales ratio to continue to slide into the 1.10 to 1.15 range as sales continue to increase amid a declining inventories trend.