U.S. Wholesale Inventories Dropped First Time in Two Years

U.S. wholesale inventories unexpectedly declined in September for the first time since December 2009 as a jump in sales helped distributors keep their stockpiles in line with demand.

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The 0.1% decrease in inventories follows a revised 0.1% rise in August that was less than the Commerce Department initially estimated. Sales grew 0.5% in September.

Wholesalers’ inventories last month were enough to last 1.15 months at the current sales pace, close to the record low reached earlier this year. Stronger demand coupled with smaller inventories may encourage manufacturers to boost production in coming months.

“Inventories were drawn down fairly rapidly in the third quarter,” said Samuel Coffin, an economist at UBS Securities LLC in Stamford, Connecticut, ahead of the report. “The fact that the disinvestment was as fast as it was suggest the possibility for faster production in the fourth quarter.”

Stockpiles of durable goods — those meant to last several years — increased 0.4% in September. The value of unsold non-durable goods inventories decreased 0.9% while purchases climbed 1.2% in their first gain since April.

Because companies kept down stockpiles last quarter, factories will have to boost production in order to meet growing demand. During the third quarter, inventories were rebuilt at a $5.4 billion annual pace, compared to the second quarter’s $39.1 billion rate. The reduction subtracted 1.1% from U.S. gross domestic product growth.

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Wholesalers make up roughly 30% of all business stockpiles, with factory inventories, which grew 0.1% in September, comprising about 38% of the total. Retail stockpiles make up the other 70% of business stockpiles, and will be included in the Commerce Department’s November 15 business inventories report.