Weak US wholesale inventories point to slower Q4 growth

[WASHINGTON] US wholesale inventories fell more than expected in November amid a push by businesses to reduce a stockpile of unsold goods, the latest indication that economic growth moderated sharply in the fourth quarter.

The Commerce Department said on Friday wholesale inventories dropped 0.3 per cent as inventories of both durable and nondurable goods fell. October inventories were revised down to show a 0.3 per cent decline instead of the previously reported 0.1 per cent dip.

Inventories are a key component of gross domestic product changes. The component of wholesale inventories that goes into the calculation of GDP - wholesale stocks excluding autos - dropped 0.4 per cent in November.

The report added to weak data on construction spending, export growth and manufacturing that have suggested GDP growth braked sharply in the final three months of 2015.

Fourth-quarter GDP growth estimates, which currently range from as low as a 0.4 per cent annual rate to as high as a 1.1 per cent rate, are likely to be revised further down following the wholesale inventory report.

The economy grew at a 2.0 per cent pace in the third quarter.

A record inventory accumulation in the first half of 2015, which outpaced demand, left businesses saddled with unsold merchandise and little incentive to order more goods. That has weighed heavily on manufacturing.

A report this week showed factory inventories fell in November for a fifth straight month. Inventories subtracted 0.71 per centage point from GDP growth in the third quarter.

Sales at wholesalers dropped 1.0 per cent in November, the biggest decline since January 2015, after falling 0.2 per cent in October.

At November's sales pace it would take 1.32 months to clear shelves, up from 1.31 months in October. The high ratio suggests that the inventory liquidation at wholesalers could persist, continuing to put pressure on manufacturing.

REUTERS