US wholesale inventories unexpectedly rose in January as sales recorded their biggest decline since 2009, pushing the number of months it would take to clear warehouses to its highest level in more than 5-1/2 years. Economic growth in recent months has been slowed by harsh winter weather as well as a now-settled labor dispute at West Coast ports and weak growth in China and Europe.
US wholesale inventories unexpectedly rose in January as sales recorded their biggest decline since 2009, pushing the number of months it would take to clear warehouses to its highest level in more than 5-1/2 years. Economic growth in recent months has been slowed by harsh winter weather as well as a now-settled labor dispute at West Coast ports and weak growth in China and Europe.
However, another report on Tuesday showed US small business optimism edged up in February amid signs of tightening labor market conditions, suggesting wages may rise and bolstering the view that the recent slowdown in economic activity will be temporary.
WHOLESALE SALES SLUMP
Sales at wholesalers fell 3.1% in January, the largest drop since March 2009, after slipping 0.9% in December, the US Commerce Department said on Tuesday. At January's sales pace it would take 1.27 months to clear shelves, the most since July 2009, up from 1.22 months in December.
As a result wholesale inventories increased 0.3% in January, while stocks at wholesalers in December were revised to show them unchanged. Economists polled by a news agency had forecast wholesale inventories unchanged in January after December's previously reported 0.1% gain.
Changes in inventories are a key component in the measurement of growth in gross domestic product. The high inventory-to-sales ratio suggests wholesalers have little incentive to stock their warehouses, which could weigh on first-quarter GDP growth.
The rise in wholesale inventories, weak January construction spending and export growth, and softer February automobilesales, have prompted economists to cut their estimates of US first-quarter economic growth by as much as six-tenths of a percentage point to as low as a 1.5% annualized pace.
As of Monday this week, the Atlanta Federal Reserve's model was forecasting a 1.2% growth pace for the January-March period. The economy expanded at a 2.2% rate in the fourth quarter last year, largely held back by a slow inventory build and a large international trade deficit. US stocks were weaker at midday while Treasuries rose and the dollar was up against a basket of currencies.
SMALL BUSINESS CONFIDENCE UP
Economic growth may pick up speed again in the second quarter though, with employment still growing at a healthy pace and wages seen rising.
The National Federation of Independent Business said on Tuesday its Small Business Optimism Index gained 0.1 point to 98 last month, the third highest reading since early 2007. A U.S. Labor Department report on Tuesday showed the number of job openings rose to 4.998 million in January from 4.877 million in December.
The survey of 716 small business owners found 53% reported hiring or trying to hire, up 5 percentage points, but 47% reported few or no qualified applicants for the positions they were trying to fill, and 29 % could not fill open positions, the highest level since April 2006. About 14% cited the shortage of skilled labor as their top problem, the highest since September 2007.
"It clearly signals accelerating wage gains," Pantheon Macroeconomic's Ian Shepherdson said of the NFIB report. The Labor Department reported on Friday that nonfarm payrolls increased 295,000 in February, marking the 12th straight month of job gains above 200,000, which is the longest such stretch since 1994.
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