The surge in consumer spending in July was accompanied by a steeper than expected decline in wholesale inventories.
Wholesale inventories fell by 0.2 percent in July, the Commerce Department said Friday, twice as much as expected. This was the second straight monthly decline.
Sales rose by 0.8 percent in July, the government said in a report released last week. This was far more than expected and apparently caught merchants off-guard, resulting in plunging stocks at wholesalers.
The inventory-to-sales ratio fell to 1.39 months in July from 1.41 months in the prior month. This decline likely means that wholesalers will begin restocking their warehouses, which could accelerate economic growth in the second half of the year.
Falling inventories might also push companies to raise their prices, reigniting inflation.
The prior month’s decline was revised down from a 0.5 percent decrease to 0.7 percent, indicating that inventories were even lower than previously thought. Many wholesalers and retailers have spent much of the year selling down their stockpiles of goods out of concern that the economy would fall into a recession that has not materialized.
The economy grew at a two percent annual pace in the first three months of the year and a 2.1 percent pace in the second quarter. Most measures show growth has accelerated in the third quarter, completely upending expectations for a reversal in the second half of 2023.