May Wholesale Inventories Surprisingly Up
Fri Jul 9, 2004
WASHINGTON (Reuters) - Inventories at U.S. wholesalers jumped more than expected in May, boosted by durable goods, while wholesaler sales rose at a milder pace, the government said on Friday in a report that drew mixed assessments on the economic outlook.
Some economists saw the inventory rise as a sign of greater corporate optimism about the economy, while others suggested it was chiefly linked to higher prices.
The Commerce Department said wholesale inventories rose 1.2 percent in May after an upwardly revised 0.2 percent gain in April. Wall Street analysts had expected a 0.5 percent rise in May wholesale inventories, according to a Reuters survey.
Sales grew at a slightly weaker pace, up 0.5 percent in May after a 0.9 percent gain in April.
"The key will be to determine how much of these gains were due to rising prices and how much was due to rising units," Joe Rasco, senior economist at Merrill Lynch in New York, wrote in a report.
"Given the 0.8 percent pop in the May PPI (Producer Price Index) figure ... we believe that the bulk of these gains were probably price induced, which means the impact on real GDP (gross domestic product) will be much smaller than the headline gains suggest," he added.
Other economists took it as a more hopeful sign for the economy.
"The nice jump of 1.2 percent in May appears to have been a deliberate increase in stockpiles," A.G. Edwards & Sons economist Patrick Fearon said.
"The evidence for that is that sales for the month were up 0.5 percent. If that's true, it would suggest that wholesalers have greater confidence in the sustainability of the current economic expansion."
In a separate report on Friday, the Economic Cycle Research Institute said the pace of U.S. economic growth rebounded in the latest week from a one-year low, thanks to lower market interest rates, which helped bolster mortgage applications.
The independent forecasting group said its weekly leading index rose to 133.8 in the week ended July 2, compared with an upwardly revised 131.6 reading the previous week.
"Wholesale sales are accelerating sharply, reflecting strong spending by consumers, businesses, governments, and foreigners," said Steven Wood, chief economist at Insight Economics, in Danville, California.
"Although nominal inventories are rising quickly in Q2, a substantial portion of that is due to higher prices. Consequently, it appears as if inventory investment will make on a modest positive contribution to Q2 GDP," he added.
The Commerce Department had originally reported April inventories down 0.1 percent, while April wholesale sales had been initially reported showing a 0.8 percent gain.
The gain in inventories and slower sales propped up the inventory-to-sales ratio, which measures how long it would take to draw down stocks at the current sales pace, to 1.13 months' supply from 1.12 in April.
Inventories of durable goods -- items meant to least three years or more -- rose 1.5 percent in May, reflecting large rises in metals, hardware and lumber stocks. The durable goods increase was the highest since a matching 1.5 percent rise in November 1999.
Non-durable goods inventories rose 0.6 percent, with a 3.4 percent drop in farm products providing a slight drag.
Financial markets, which rarely respond to the wholesale inventories and sales data, showed no reaction.
Earlier this month, the Commerce Department said factory inventories climbed 0.5 percent in May. Retail sector inventories will be announced in business inventories figures due next week.
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