Wholesale inventories plunge by most in 16 years-WEB ONLY

The reduction means wholesalers ordered fewer new goods, leading to reduced production and potentially more job layoffs.

The Commerce Department said today that wholesale inventories plunged by 1.4 percent, nearly double analysts’ expectations of 0.8 percent. It also was the fourth straight monthly decline.

Sales at the wholesale level dropped 3.6 percent, slightly steeper than analysts’ expectations, but less than November’s record 7.3-percent drop.

Wholesale inventories are goods held by distributors who generally buy from manufacturers and sell to retailers. They make up about 25 percent of all business stockpiles. Factories hold another third of inventories and the rest are held by retailers.

Despite the sharp cut in inventories, sales are falling even faster, which means it is taking longer for distributors to sell their goods.

The inventories-to-sales ratio rose to 1.27 in December, up from 1.24 in the previous month. The ratio measures how many months it would take to clear inventories at the current sales pace. The ratio is at its highest level since March 2002.

Slowing retail sales are sending shock waves through the supply chain, forcing wholesalers to rapidly reduce supplies as their sales slow.

Consumers are cutting back on spending as jobs disappear and major investments, such as homes and retirement plans, decline in value. Consumer spending plunged more than 3 percent in the third and fourth quarters of last year, the steepest consecutive drops since records began in 1947.

Many retailers last week reported sharp sales drops in January. Target Corp. reported a 3.3-percent decline in same-store sales, or stores that have been open at least a year.

J.C. Penney Co. Inc.’s same-store sales fell 16.4 percent. Macys Inc.’s sales sank 4.5 percent and the company also announced that it would eliminate 7,000 jobs, or almost 4 percent of its work force.