U.S. Wholesale Inventories Rise Unexpectedly in January

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Wholesale inventories in the U.S. rose unexpectedly in January amid sluggish sales growth. The news indicates that efforts to reduce inventory stockpiles may continue well into 2016 and hinder economic growth this year.

The Commerce Department released a report on Wednesday that showed wholesale stocks increased 0.3% in January. Stocks were virtually unchanged in December. Sales were down 1.3%, extending the 0.6% decline seen in December.

Weak sale prices in January indicate that it will take wholesalers 1.35 months to clear their shelves. The current inventory-to-sales ratio is at its highest level since April 2009 when the economy was in a recession.

Inventories play an integral role in the GDP change, and have been dragging down growth since 2015.

Economists seemed unconcerned about the high inventory-to-sales ratio, citing a rise in nondurable goods stocks, like farm, drugs and paper products.

A firming housing market and strong consumer spending along with a tightening labor market are holding the economy steady.

Last week, data released by the government showed that businesses did not make as much progress as initially expected reducing inventory stockpiles in the fourth quarter. Altogether, inventories subtracted a little over 1/10 of a percentage point from GDP growth in the fourth quarter.

Economists were projecting inventories to fall 0.2% in January. The key area of wholesale inventories that affects GDP calculations rose 0.1% that same month.

A surprise jump in wholesale inventory investment caused economists to raise their estimates for first-quarter GDP growth by two-tenths of a percentage point to an annualized rate of 2.4%.

Quicker growth will come at a price: output in the second and third quarter of the year. In the fourth quarter, the economy grew at a rate of 1%.

In the first half of 2015, businesses amassed record inventory levels, which far outpaced demand. The restocking pace slowed, but inventories were high nonetheless in the latter half of the year.

Wholesale drug inventories climbed 3.3% in January, but sales were 0.2% lower. The slump in sales pushed the inventory-to-sales ratio in that sector to its highest level since 2005.

Automobile inventories were also higher, while auto sales fell 0.1%.

High inventory levels still remain at lumber, apparel, furniture and machinery wholesalers.

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