Fleet Management

Wholesale Inventories Drop, Sparking More Economic Hope

September 07, 2001

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There was more encouraging economic news this week for trucking, following earlier news that manufacturing may be starting to rebound.
The U.S. Commerce Department reported Friday morning the wholesale inventories in this country fell a hearty 0.7% in July,
the biggest single month decline in almost five years. Sales increased 0.6%, while the inventory-to-sales radio, which measures how long it would take to deplete current inventories, fell from 1.33 months in June to 1.32 months in July.
For the trucking industry that is welcome news, says Newport Communications Senior Economist Jim Haughey, but more improvement is needed.
“Total wholesale inventories must fall another 5-6% or sales must rise about 4% for inventories to be back in balance,” he said.
According to Haughey, the 0.6% gain in wholesale sales is not as good as it sounds because this figure has a large margin of error.
“Sales were reported down nearly 3% over the previous two months," he says. "We can only be sure that the July sales change was in the range of -1.7% to +2.9%. Other recent retail and manufacturing data suggests that wholesale sales are likely steady to slightly up.”
He also describes the inventory to sales radio as “about two days too much inventory based on the I/S ratio in recent periods of inventory balance.”
The July drop in inventories was led by two categories. Electrical equipment stocks fell almost 4%, while inventories of durable goods dropped by 0.8%. Inventories of non-durable goods posted a 0.6% drop, and several other categories also posted declines.
Meanwhile, the increase in July sales was the biggest since December and is a sharp increase from a revised 1.1% drop in June.
Earlier in the day, the Labor Department released a piece of news that surprised few people. Unemployment in the Untied States increased from 4.5% in July to 4.9% in August, the highest rate since September 1997.
Many of the job losses were in the manufacturing sector, an important trucking customer, which has laid off more than a million people in just over the past year.
Some analysts are concerned that news of increasing unemployment might scare consumers, whose fairly strong spending levels have so far managed to keep the economy from further hitting the skids this year.

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