Inventories for wholesalers in the United States dropped in January by 0.2 percent, seeming to indicate they are struggling to replenish inventories they kept at low levels for the last couple of years.
Some assert this is from rising demand, but that really doesn't necessarily ring true, as lower inventories could simply mean they haven't replenished fully yet, and just normal, seasonal orders are backed up as a result, rather than an increase in demand because businesses are ordering more products.
In other words, this could be an inventory management and operational problem rather than demand, but we'll have to wait some time to see which one it really is.
Of course with the taxation on inventory in the United States, the idea of inventory falling at the end of a year is the normal circumstances, as companies allow that to happen to manage their tax burden. After that replenishment always happens in the earlier part of the year in preparation for spring sales, depending on any specific industry.
What will be more interesting is how retail inventory is doing, which will come out on March 12. But as they have similar situations in reference to taxation, it'll be hard to know whether there is legitimate growth or simply restocking in preparation for the the usually busy spring shopping season.
Although anything positive can be appreciated, we're still largely in a period of replenishment, and spinning it any other way is either dishonest or ignorant.
Those industries experiencing the largest drop in inventories continue to be business equipment and machinery, showing consumers are still holding on to their money. Until that changes, we're a long way from a real recovery and from wholesale inventory counts meaning anything sustainable.
The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com