Weak US inventories seen weighing on fourth quarter growth

WASHINGTON: US wholesale inventories fell in October as businesses stepped up efforts to reduce stockpiles of unsold merchandise, suggesting inventories would again be a drag on growth in the fourth quarter.

The Commerce Department said on Wednesday wholesale inventories slipped 0.1 percent as stocks of both durable and nondurable goods fell. September inventories were revised down to show them increasing only 0.2 percent instead of rising 0.5 percent as previously reported.

Inventories help drive changes in gross domestic product. The component of wholesale inventories that goes into the calculation of GDP, wholesale stocks excluding autos, also dipped 0.1 percent.

A record back-to-back increase in inventories in the first two quarters of this year left warehouses bulging with unsold merchandise and businesses with little appetite to restock. Inventories subtracted 0.56 percentage point from GDP growth in the third quarter. That restricted GDP growth to an annualized rate of 2.1 percent.

The drop in wholesale inventories in October prompted economists to trim their fourth-quarter growth estimates by as much as two-tenths of a percentage point to a 1.7 percent rate. “We think that the drag from inventories in the fourth quarter will be more severe than we had previously believed,” said Daniel Silver, an economist at JPMorgan in New York.

Given downward revisions to September data, economists said they expected the third quarter GDP estimated would be lowered to a 1.9 percent pace when the government publishes its second revision later this month. Data last week showed manufacturing inventories fell for a fourth straight month in October.

Retail inventory data on Friday could shed more light on the magnitude of the anticipated inventory drag in the final three months of the year. Sales at wholesalers were unchanged in October after increasing 0.5 percent in September.

Sales have been soft since last August, in part due to the negative impact of lower oil prices on the value of petroleum products sales At October’s sales pace it would take 1.31 months to clearshelves, unchanged from September.

This is a relatively high ratio and suggests that businesses are unlikely to ramp up their pace of inventory accumulation any time soon.

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