Another Outsized Cut in Wholesalers' Inventories

Inventories of merchant wholesalers declined 1.4 percent in April, marking the eighth straight month of declines. The revision to March makes it the largest inventory decline on record. Sales decreased 0.4 percent, which makes the drawdown process especially tedious. The start of the second quarter shows another large inventory change.

Inventories Fell Further

Wholesalers drew down their stockpiles in April in an ongoing effort to adjust to weak demand, and March data were revised to show a greater decline than initially reported.

Sales continued to fall, though not as fast as inventories on a month-over-month basis. On a year-over-year basis, sales declines are severely outpacing inventory declines - a reflection of the sudden severity of the current downturn.

Demand for Durable Goods Still Falling

Wholesalers are cutting inventory despite extremely weak sales. While inventories-to-sales ratios may have peaked, they remain extremely elevated. Durable goods often require more confidence on the demand side, and sales are declining especially quickly in the automotive sector, down 7.8 percent, month over month. In contrast, petroleum sales are up, driven mainly by price increases.

Wachovia Corporation
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