June wasn't a very good month for wholesalers. Their sales declined for the second month straight, by 0.7%, according to the Census Bureau. That was worse than May's 0.5% decline and the biggest drop since March 2009. Meanwhile, inventories grew only slightly, but June marked the sixth month straight of inventory growth. Wholesale performance is more of a leading indicator, and June wasn't a pretty month.

Let's start with the chart:

wholesale inventory sales 2010-06.PNG

You can see that cautious wholesalers hadn't grown inventories as quickly as sales increased in the early part of this year, causing the gap between the two lines to shrink a bit. But the recent decline in sales is widening that margin again.

Another way to look at this is through the ratio of inventory to sales:

wholesale inventory sales ratio 2010-06.PNG

This provides a historical perspective of the usual relationship between these two variables. From 2004 through 2008, the average ratio was 1.18. So the ratio, which had declined below that average, is now approaching that level, hitting 1.15 in June. Yet it would have certainly been better to see the ratio rise with both sales and inventories were increasing -- not because sales declined.

Sales falling as inventories continue to grow is a very bad result. First the decline in sales obviously implies that retailers are anticipating less consumer demand. Second, as inventories continue to rise as sales drop, wholesalers won't feel they need to hire additional workers.

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