WASHINGTON – Wholesalers slashed inventories for a seventh straight month in March as businesses struggled to get stockpiles in line with plunging sales.
The Commerce Department said Friday that wholesale inventories dropped 1.6 percent in March, much larger than the 1 percent fall that analysts had expected. That followed a 1.7 percent drop in February, the largest monthly decline on records that go back 17 years.
Wholesalers also saw sales plunge 2.4 percent in March, the fifth decline in six months.
The drawdown in inventories at all business levels has contributed to a sharp contraction in the economy. The gross domestic product fell at an annual rate of 6.1 percent in the first quarter of this year after a 6.3 percent drop in the final three months of last year, the steepest six-month decline in a half-century.
The ratio of wholesale inventories to sales edged up to 1.32 in March, meaning it would take 1.32 months to exhaust inventories at the March sales pace. That was up from an inventory-to-sales ratio of 1.12 in March 2008.
But economists are hopeful the cutbacks in stockpiles mean that businesses are getting their inventories more in line with sales and that a rebound in consumer demand will trigger increased production.
Wholesale inventories are goods held by distributors who generally buy from manufacturers and sell to retailers. They make up about 25 percent of all business stockpiles. Factories hold another third of inventories and retailers hold the rest.
Wal-Mart Stores Inc. on Thursday reported better-than-expected sales in April, crediting the strength to demand for Easter merchandise and higher store traffic. The Children’s Place, T.J. Maxx owner TJX Cos. Inc. and The Buckle also reported bigger sales gains than expected. And mall-based clothing stores including Gap, American Eagle and Wet Seal reported smaller monthly sales dips than analysts expected.
Consumer spending, which accounts for about 70 percent of total economic activity, posted big drops in the last half of 2008 but grew in the first quarter of this year. That’s one of the positive signs economists have used to support their view that a recovery could occur in the second half of 2009.
However, economists expect a slow recovery with unemployment rising into next year. In a separate report, the Labor Department said Friday that the unemployment jumped to 8.9 percent in April, the highest level since late 1983, as employers cut another 539,000 jobs.