Ahead of the Bell: Wholesale Inventories

AP News
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Posted: Dec 09, 2009 6:27 AM

Businesses likely slashed wholesale inventories for a record 14th consecutive month in October, but analysts expect sales grew for a seventh straight time.

Steadily rising sales could encourage businesses to restock shelves, boost production and bolster a broad recovery. The concern is that consumer spending, which accounts for 70 percent of economic activity, could falter in the face of high unemployment and after various government stimulus programs wind down.

Economists surveyed by Thomson Reuters expect inventories held by wholesalers dropped 0.5 percent in October, following a 0.9 percent decline in September.

Wholesale sales likely rose 0.7 percent, matching the previous month.

Wholesale inventories are goods held by distributors who generally buy from manufacturers and sell to retailers. They make up about 25 percent of all business stockpiles. Factories hold another third of inventories and retailers hold the rest.

The Commerce Department is scheduled to release the wholesale report at 10 a.m. EST Wednesday.

Steady gains in sales should help convince businesses to stop slashing inventories, which has been a severe drag on the recovery. A switch to rebuilding stockpiles would trigger higher factory production and economic growth.

But consumer spending remains a concern. There was a net loss of 111,000 jobs in October, according to the Labor Department's monthly employment report, which found that the unemployment rate rose to a 26-year high of 10.2 percent from 9.8 percent. The rate dropped to 10 percent last month, as job losses unexpectedly slowed to 11,000.

Last month's decline gave many economists hope that the economy may begin to generate new jobs by as early as January or February. But the unemployment rate may climb for several more months as many Americans who have dropped out of the work force renew their job searches and add to the ranks of the unemployed.

And after consecutive gains, the nation's retailers reported a sales decline last month, an ominous sign for the holiday shopping season. A diverse group of stores including Macy's Inc., Saks Inc., Abercrombie & Fitch Co. and Target Corp. posted sharper-than-expected sales declines in November.

The decline in inventories is the longest stretch on government records that date to 1992. The previous record was nine straight declines during a period that covered the nation's last recession in 2001.