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US Wholesale Inventories Rise

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January Wholesale Inventories for the US have just been announced at 0.6%. The market had only expected a rise of 0.4%, slightly up on December’s figure of 0.3%.

This figure captures the level of goods that have been produced in the US but are waiting for onward sales. In essence if this figure is rising it is indicative of a slowing in the US economy as it accounts for delayed or cancelled sales. The production process will quickly adjust to keep this figure around it’s long term average of 0.5% implying that market moving information is really only discernible when this number deviates from the norm for more than two consecutive months. This month’s number is important due to the lower than usual reading in December, however given it’s proximity to the long-term average it appears that the 0.6% reading may in fact just be an over compensation.

Despite today’s adequate data, question marks still remain over the actual strength of the US recovery. As we approach the end of the first quarter, economic data for the year so far has been consistently disappointing. The impact of the recent extreme weather conditions has yet to be fully analyzed but no doubt it played some role in the slower than anticipated quarter. Geopolitical unrest and nerves in emerging markets have contributed to the flow of funds into US assets, distorting and perhaps masking some fundamental weaknesses.

Last Friday’s Non-Farm payrolls however provided a chink of light, more than that they added a discernibly upbeat feel to the sentiment towards the US economy. This was followed up Yesterday by the White House’s favorable economic forecasts for 3.1% and 3.4% GDP growth over the next two years. These economic predictions by the Obama administration are somewhat more optimistic than those of the Federal Reserve, who recently cut back their growth projections.

The reassuring element here is that both the fiscal and monetary branches of the US authorities are broadly aligned towards maintaining US GDP growth around the current 2.5% level.

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