November 27, 2020

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Wholesale Inventories: What Does It Mean?

2 min read

Question:

What do Wholesale Inventories mean?

Answer:

Wholesale Inventories is the amount of stock held by wholesalers. [A wholesaler is a party that buys items from factories, vendors, or manufacturers, and stores them in warehouses. The wholesaler then sells these items in bulk to retailers/shops. Note: wholesaler is different from a distributor; a distributor usually deals in limited, specific brand items.]

An increase in wholesale inventories is seen as a positive sign for the economy only if the wholesalers are increasing their stock to meet the demand of retailers, or customers. If sales are growing, it makes sense for the wholesalers to stock up more goods in order to meet the increasing demand in a timely fashion.

Is an increase good or bad?

Increase in wholesale-inventories can suggest a healthy economic recovery. When more people spend money to buy stuff, it is taken as a sign of economy recovery. When demand from customers increase, wholesalers often increase their stocks in order to keep up with the demand.

Increase in wholesale inventories can also indicate contraction of economy. When the purchasing power of customers reduces, they stop or reduce buying new items. When retailers sell less goods, they obviously are going to demand less items from the wholesalers. In such situations, the wholesalers aren’t able to sell as much items as they would normally do and hence their stock of goods goes up.

If the stocks are piling in wholesalers warehouses as a result of reduced demand, then it tells us a completely different picture of the economy. For instance, in the recession of 2008, purchasing power of an average citizen had reduced significantly. As a result, the demand for durable and non-durable goods dropped significantly.

Increase in GDP

Increase in purchasing power of an average person usually translates into increase in demand of goods. This is what leads to a higher GDP [Gross Domestic Product.] When customers demand more goods, the retailers place more orders with wholesalers, who then purchase higher number of goods from vendors, or manufacturers. The cycle of demand-and-supply is essential to the growth of GDP; hence, the economy grows, or at least this is what the government wants us to believe :)

Useful Resources!

1. The Role of Inventories in the Business Cycle
2. Sticky prices, inventories, and market power in wholesale gasoline markets
3. Economic Indicators
4. U.S. wholesale sales and inventories in February show no economic growth
5. Inventories and output volatility
6. U.S. retail and wholesale inventory performance from 1981 to 2004

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