What Is Wholesale Trade?
Wholesale trade measures the value in U.S. dollars of all merchant wholesalers’ sales and inventories. It is a crucial component of business sales and inventories, involving firms that exclusively sell to governments, institutions, and other businesses.
Key Takeaways
- Wholesale-trade data provides insights into the consumer economy, offering clues about prospective consumer trends based on wholesalers’ sales and inventory numbers.
- By evaluating the ratio of sales to inventories, one can predict future production growth or slowdown.
- Only firms selling to governments, institutions, and other businesses qualify as part of wholesale trade.
Delving Deeper into Wholesale Trade
The wholesale trade sector comprises the sale of merchandise derived from industries such as manufacturing, agriculture, mining, and publishing, as defined by the Bureau of Labor Statistics (BLS).
Wholesaling is an intermediate step in distributing goods. Wholesalers either sell directly or organize transactions for reselling goods to other wholesalers or retailers. This also includes arranging sales or purchases of raw materials, production supplies, or durable consumer goods.
Typically, wholesalers operate from warehouses or office facilities, conducting business with other businesses rather than walk-in customers. Wholesalers form an essential part of the supply and sales chain, playing a critical role in supporting consumer trade by maintaining long-standing relationships with vendors and retailers. The U.S. Census Bureau provides comprehensive monthly and annual wholesale trade reports.
Utilization of Wholesale Trade Data
Wholesale-trade data gives investors a closer look at the consumer economy. The sales and inventory data act as a leading indicator of consumer trends. For instance, if inventories grow slower than sales, production must increase to avoid shortages. Conversely, if sales growth lags behind inventory growth, it leads to oversupply, suggesting a production slowdown in the coming months.
Since manufacturing constitutes a significant proportion of gross domestic product (GDP), wholesale-trade data serves as a valuable economic barometer. Equity markets respond positively to increased production due to associated corporate profit growth, while bond markets favor moderate growth to mitigate inflation.
Related Terms: economic indicator, wholesaling, supply chain, leading indicator, inventory.
