U.S. wholesale businesses in January suffered their steepest sales drop in nearly five years, yet they continued to increase their stockpiles. This suggests that companies expect the economy to rebound after experiencing an abrupt winter slowdown.
Wholesalers boosted stockpiles 0.6 percent in January from December, the Commerce Department said Tuesday. Rising stockpiles boost economic growth, because they reflect increased production at factories, a sign that wholesalers anticipate a stronger economy.
But sales tumbled 1.9 percent in January. That’s the largest decline since March 2009, when the economy was in recession.
Heavy snowfall and bitter cold struck much of the United States in January, causing shoppers to stay at home and retail sales to fall 0.4 percent that month. Major store chains have reduced their profit outlooks, including Wal-Mart Stores Inc., the nation’s largest retailer.
Still, wholesale businesses have seen sales rise 3.9 percent year over year.
The government tracks inventories held by wholesalers, manufacturers and retailers. A report covering all inventory levels comes out Thursday.
A major jump in stockpiles during the July-September quarter last year contributed two-fifths of that period’s surprisingly robust 4.1-percent annual economic growth rate. But the pace of stockpiling slowed in the final three months of 2013, contributing just 0.14 percentage points to the 2.4-percent annual growth rate. The U.S. economy grew 1.9 percent overall last year.
Greater stockpiling indicates that businesses expect consumers to buy more goods, a sign of an improving economy. Inventories for automobiles, metals, hardware and machinery all increased in January.
But substantial increases can also pose risks for growth, since the additional products in stores and on warehouse shelves will sit unused if consumers don’t spend more. Wholesaler clothing and furniture sales both declined in January.
If sales slow, retailers, manufacturers and wholesalers will have to sell their goods at discounted prices, cutting into profits. And those companies will also order fewer new goods, lowering factory output.
The February employment report, released on Friday, indicated that the economy might accelerate during the spring. Employers added 175,000 jobs last month, the Labor Department said. This suggests that they expect growth to continue, once the canceled flights, traffic jams and factory delays caused by winter storms come to an end as warmer weather returns.