Wholesale Inventories Rise More than Expected, Equities Fall
The Wholesale Inventory Survey measures monthly sales, end-of-month inventories, and inventories-to-sales ratios of businesses for wholesale firms located in the United States.
Specifically, the survey covers wholesale merchants who sell goods on their own account and include such businesses as wholesale merchants, industrial distributors, exporters, and importers.
Traders key into this report to see the potential health of consumer spending. Generally, high Wholesale Inventories signal that goods are piling up, which potentially indicates that retailers are facing slower consumer demand, as consumers are unwilling to purchase goods.
Wholesale Inventories in February rose 0.9 percent, which was higher than the estimated rise of 0.5 percent. Also, January's figure was revised higher to 0.6 percent from 0.4 percent.
According to the US Census Bureau, total inventories of merchant wholesalers, except manufacturers' sales branches and offices, after adjustment for seasonal variations but not for price changes, were $478.9 billion at the end of February, up 0.9 percent from the revised January level and were up 9.3 percent from the February 2011 level.
February inventories of durable goods were up 0.5 percent from last month and were up 10.2 percent from a year ago.
Inventories of machinery, equipment, and supplies were up 1.9 percent from last month.
Inventories of nondurable goods were up 1.4 percent from January and were up 8.2 percent from last February.
Inventories of petroleum and petroleum products were up 5.6 percent from last month and inventories of farm product raw materials were up 2.1 percent.
The February inventories/sales ratio for merchant wholesalers, except manufacturers' sales branches and offices, based on seasonally adjusted data, was 1.17. The February 2011 ratio was 1.17.
US equity markets fell on above average volume after this data was released. Currently, the Dow Jones Industrial Index is trading down about 58 points during Tuesday's trading session.
Traders who believe that Wholesale Inventories are a leading indicator for the US economy, you might want to consider the following trades:
- Since the data was higher than expected, short general consumer discretionary (NYSE: XLY) companies like Fred's (NASDAQ: FRED) as these companies will not benefit as consumers might not be spending as previously thought.
- Also, short technology retailers like BestBuy (NYSE: BBY).
Traders who do not believe that Wholesale Inventories are a leading indicator for the general US economy, you may consider alternative positions:
- Long Consumer Staple companies like Procter & Gamble (NYSE: PG) and Colgate (NYSE: CL) because even if the economy is struggling, people still need to buy staple products like shampoo and toothpaste.
- Also, long big-ticket appliance makers like Whirlpool (NYSE: WHR), since they will likely be oversold.
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