Wholesale Inventories Revised Down, Showing Start of 2023 Was Worse Than Thought

Wholesalers in the U.S. did not expand their inventories in March, the government said Monday.

Wholesale inventories were revised down to show them unchanged from the prior month, the Commerce Department said in its second estimate. The previous estimate had shown them growing 0.1 percent.

Economists had forecast the second estimate to continue to show a tenth of a percentage point growth.

March was the second consecutive month of flat inventories, which are a key part of gross domestic product. A decline in private inventory investment creates a drag on GDP, while growing inventory investment adds to GDP.

Total inventories were down 9.1 percent from the year-ago level.

In the first quarter of 2023, private inventory investment fell for the first time in a year and a half. GDP growth slowed to 1.1 percent, lowering than expected.

The behavior of inventories around business cycles is complex. Inventories can shrink because businesses find themselves loaded with too much stock after a disappointing holiday sales season, for instance. Alternatively, they can shrink if sales are brisker than expected. Businesses can also shrink inventories in anticipation of falling demand.

In the first quarter of this year, the drawdown was likely due to all three. Consumer spending was stronger than expected as the year began but had been weaker than expected in the final quarter of the last year. At the same time, many businesses expect a recession this year and have pulled back in inventory investment.

On the other hand, leaner inventories could be good news for GDP in the second quarter and ahead. The first quarter decline has convinced some economists that much of the inventory liquidation has been completed. Businesses may now have begun restocking, which would be a tailwind for GDP.

Wholesale motor vehicle inventories rose 1.5 percent in March and two percent in February. Excluding autos, wholesale inventories fell 0.2 percent in March. The ex-autos figure is used in the calculation of GDP.

Sales by wholesalers dropped 2.1 percent in March after rising 0.4 in February in February. As a result, the time it would take to clear wholesale inventories edged up to 1.4 months from 1.37 months.