Businesses slashed wholesale inventories sharply in December, a much weaker showing than expected and a troubling sign that companies are still too pessimistic about the economy to begin restocking shelves on a sustained basis.
Economists believe that the country won't be in a sustained recovery until businesses begin restocking their depleted shelves which will mean higher orders to factories and increased demand for manufacturing workers.
The Commerce Department said Tuesday that wholesale inventories were reduced 0.8 percent in December. Economists surveyed by Thomson Reuters had expected inventories to rise by 0.5 percent during the month.
The government said that sales at the wholesale level did rise in December, increasing 0.8 percent.
The weakness in inventory rebuilding in December was an indication that businesses, still struggling to emerge from the deepest recession in decades, are not yet confident enough in rising sales to begin rebuilding their stockpiles on a sustained basis.
The 0.8 percent drop in wholesale inventories followed a 1.6 percent rise in November which had triggered hopes that businesses were growing more optimistic after a prolonged period of slashing inventories.
The 0.8 percent rise in sales followed an even bigger 3.6 percent increase in sales in November. Economists had expected a 0.5 percent sales rise in December.
Wholesalers hold 25 percent of all inventories with factories holding about one-third and retailers holding the rest.
It was a big slowdown in the pace of inventory reductions that contributed nearly two-thirds of the growth in the overall economy in the fourth quarter as measured by the gross domestic product.
The GDP shot up at an annual rate of 5.7 percent in the October-December period, the strongest showing in six years but the concern is that this boost from inventories will be temporary and GDP will slow significantly in coming quarters.