Wholesale Inventories weak but signs of hope

Wholesale Inventories in August fell by 1.3%, .3% more than expected and July was revised lower by .2%. Because sales rose 1%, the inventory to sales ratio fell to 1.20 from 1.23 and is at the lowest level since Sept ’08. It’s now well below the high of 1.34 in Jan but also remains well above the record low of 1.11 in June ’08. Inventories fell in every category and in particular, auto inventories fell by 2.3% but that should reverse in the next few months as production started again in July at many different plants and will begin to show up in the data. While today’s figure is just 25% of overall Business Inventories, it shows that at least for 2/3 of Q3, inventories remained a drag on GDP and the hoped for Q3 contribution is not fully there. However, the backdrop of lean inventories still remains favorable for an inevitable uptick.

A sign that inventory builds will start showing up in the data, commercial paper outstanding for the week rose by a large $67.6b, led by a $27.9b rise in nonfinancial CP outstanding which companies would tap to finance working capital needs and would only do so if they saw opportunities. It’s the largest increase since early January. Financial company CP outstanding rose by $30.6b but was mostly driven by foreign borrowers. Asset backed CP rose by $9.1b and continues the rise seen over the past month.

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