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Business Inventories and Sales Decline with Sluggish Demand

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Jan. 19 2016, Updated 6:16 a.m. ET

Wholesale inventories fell 0.2% in November

According to the US Census Bureau, manufacturing and trade inventories were estimated at $1.8 trillion at the end of November 2015. The inventories recorded a month-over-month fall of 0.2% in November, following a downwardly revised 0.1% fall in October 2015. Trade inventories increased 1.6% over the 12 months prior to November 2015.

With a slowdown in inventories, the SPDR S&P 500 ETF (SPY) and the Industrial Select Sector SPDR ETF (XLI) fell by 9.7% and 9.5%, respectively, over the month prior to January 15.

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Retailer inventories rose 0.2% in November

In inventories, a positive contribution of 0.2% came from retailers, whereas manufacturers and wholesalers contributed -0.3% each in November 2015 on a monthly basis.

On a monthly basis, the positive contribution to retail inventories came from furniture and home furnishings, building material supplies, and clothing accessories, which increased 1.4%, 0.4%, and 0.2%, respectively, in November 2015.

Stocks of The Home Depot (HD), Tile Shop Holdings (TTS), and Lowe’s Companies (LOW) rose 15.5%, 86.9%, and 3.7%, respectively, over the year prior to January 15.

In contrast, motor vehicle and parts dealers and food and beverage stores remained unchanged in November, and department stores contributed -0.5% towards the trade inventories. Dillard’s (DDS) and JCPenney’s (JCP) stocks fell by 9.3% and 0.14%, respectively, over the month prior to January 15.

Wholesale trade sales fell 0.2% in November

For November 2015, wholesale trade sales amounted to $1.3 trillion. They were down 0.2% month-over-month in November and 2.8% from a year prior. The SPDR S&P Retail ETF (XRT) fell 11.2% from a year prior to January 15.

While manufacturers’ and retailers’ sales rose 0.2% and 0.3% from their October levels, wholesalers’ sales recorded a fall of 1.0% in November and 0.2% in October 2015. The November business inventories-to-sales ratio stood at 1.4, compared with 1.3 in November 2014.

With order book and production levels remaining muted, manufacturers are cautious about maintaining huge inventory levels. Also, declining sales may see a further weakening of business sentiment in the economy.

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