The Commerce Department reported today that wholesalers seem to be making some progress at working down inventories that have been building for the past several months. During November, total inventories fell by 0.4% after a rise of 0.8% in October. The November drop was the biggest decline since March 1994.

Inventories didn't decrease in all categories. Unsold electrical goods rose 2.5% and lumber and construction materials increased 1.1%. But, inventories of machinery, equipment and supplies, and furniture and home furnishings each fell by 1.3%. Motor vehicle and auto equipment inventories decreased by 0.6%. Grocery products fell 1.9%, and farm-product raw materials inventories dropped 2.2%.

Wholesale sales during November rose by 0.4% following a rise of 0.1% in October.

The inventory-to-sales ratio, which shows how many months it would take to dispose of current inventories at the current sales rate, decreased from 1.36 to 1.35 from October to November.

It doesn't appear that the November rise in wholesale sales had any major impact at the retail end of the distribution pipeline. The year-over-year growth in retail sales during the holiday shopping season was the worst in 10 years. And, most likely, the November reduction in inventories at the wholesale level was at the expense of fewer orders for goods from the production end of the pipeline. This is why manufacturers continue to report reduced production, decreased employment and capacity utilization, and inventory buildups at their facilities.

Byline: Lafferty (MF Merlin)