Wholesale inventories dropped 0.2 per cent in June, the Commerce Department said Thursday. That's the largest drop in nine months. Sales at the wholesale level fell 1.4 per cent, the sharpest decline since March 2009.
Even though stockpiles declined, the steeper drop in sales means it would take wholesalers longer to clear out their inventories. That suggests they may order fewer goods to keep their stockpiles from getting any larger. That could lower factory production and slow growth.
Sales of industrial machinery fell by the most in nearly three years, while sales of electronic goods, petroleum, and metals also fell.
Stockpiles at the wholesale level stood at $481.9 billion in June. That's 25 per cent above the post-recession low of $384.9 billion in September 2009.
Consumer spending and business investment slowed this spring. Americans increased their spending at an annual rate of only 1.5 per cent in the April-June quarter, down from 2.4 per cent in the first three months of the year. Businesses cut back on orders for long-lasting factory goods.
Americans are spending less at the same time that hiring has slowed. Employers added only 73,000 jobs per month from April to June, about a third of the pace in the first quarter.
Hiring picked up a bit in July, when employers added 163,000 jobs. But the unemployment rate still rose to 8.3 per cent from 8.2 per cent in June.
Many businesses slowed restocking last summer fearing that the economy was on the verge of another recession. When it became clear that it wasn't, they raced to rebuild stockpiles and keep pace with consumer demand.
As a result, inventory restocking was a huge contributor to growth in the final three months of last year. It accounted for more than half of that quarter's growth.
Companies then pared their stockpiles in the first quarter. And in the April-June quarter, companies restocked their shelves, boosting growth a bit.
Stockpiles at the wholesale level account for about 27 per cent of total business inventories. Stockpiles held by retailers make up about one-third of the total. Manufacturing inventories represent about 40 per cent of the total.Suggest a correction