Wholesaler inventories and sales both increased in March, according to the Census Bureau. That's good news, right? Sort of. Sales grew by 2.5% over February and 15.8% from March 2009. But inventories only increased by 0.4% over February and actually declined by 5.3% from a year earlier. Although wholesalers are beginning to replenish their shelves, they continue to do so at a slower pace than sales grow.

Here's a chart showing the relationship between wholesale sales and inventories since 1992, when the government started keeping track:

wholesale inv-sales 2010-03 cht1.PNG

As you can see, inventories have barely ticked up since September, while sales have been growing for about a year. By looking at the ratio of inventories over sales, you can see the difference in the pace of growth of these two indicators:

wholesale inv-sales 2010-03 cht2.PNG

At 1.13, the ratio hit a historical low in March. This means two things. First, wholesalers accumulated an incredible excess of inventory in 2008, as the steep peak shows. But the ratio remaining well below its average value of 1.25 between January 1992 and June 2008 indicates that its current level is probably too low. The natural balance of sales and inventory should bring up that ratio before long. When it does, more aggressive hiring should follow.

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