In the midst of collapsing demand U.S. Wholesale Inventories, Sales Fell in December.

Inventories at U.S. wholesalers fell twice as much as forecast in December as businesses tried to keep up with plummeting sales.

The 1.4 percent decline in the value of stockpiles followed a revised 0.9 percent decrease in the prior month, the Commerce Department said today in Washington. It was the fourth straight monthly drop, the longest such stretch in almost seven years. Sales fell 3.6 percent after a 7.3 percent decline.

Wholesalers had enough goods on hand to last 1.27 months at the current sales pace, the highest level since 2002. Sliding demand in the U.S. and abroad signals a further pullback in production as companies try to work through their stocks of unsold goods at warehouses, worsening the recession.

“Businesses are reacting to demand, they are trying to manage inventories and prevent excess stockpiling,” said Michelle Meyer, an economist at Barclays Capital Inc., in an interview with Bloomberg Television in New York. “It’s representative of just how weak demand has become, how weak sales have become, not just on the consumer side but on the production side.”

Wholesalers make up about 25 percent of all business stockpiles. Factory inventories, which account for about a third of the total, fell 1.4 percent in January, Commerce reported on Feb. 5. Retail stockpiles, which make up the rest, will be included in the Feb. 12 business inventories report.

The economy shrank 3.8 percent in the fourth quarter, the most since 1982, as consumer spending continued to slide. Inventories grew at a $6.2 billion pace in the quarter, the first gain in more than a year.

Economists say the economy may shrink at an even faster rate this quarter as businesses focus on inventory reduction. Manufacturing shrank further in January, the Institute for Supply Management’s factory index showed last week.

Wholesalers’ stockpiles of durable goods, or those meant to last several years, fell 1.4 percent in December after dipping 0.4 percent in the prior month. Inventories of machinery rose, signaling producers will cut back further.

Vehicle inventories rose 1.7 percent, after increasing 1.5 percent the prior month, while auto sales fell 8.1 percent, today’s report showed. That pushed the industry’s inventory-to-sales ratio up to a record 2.31 months.

Incredibly Grim Numbers

These are incredibly grim numbers, especially for the automakers. In spite of massive production cutbacks, vehicle inventories are soaring, to a record inventory-to-sales ratio of 2.31 months. Meanwhile, wholesalers had enough goods on hand to last 1.27 months at the current sales pace, the highest level since 2002.

Auto Related News

In auto related news, GM cuts 10,000 salaried jobs, trims employees’ pay.

General Motors Corp. is planning to slash another 10,000 salaried jobs this year, saying the cuts are unavoidable with a government restructuring deadline looming and industrywide sales in one of the worst downturns in history.

The Detroit-based automaker said Tuesday it will reduce its total number of white-collar workers by 14 percent to 63,000. About 3,400, or 12 percent, of GM’s 29,500 salaried U.S. jobs will be eliminated.

Most of the company’s remaining salaried employees will have their pay cut.

In its plan to Congress submitted late last year, GM said it would have to reduce both salaried and hourly positions so that the company could become viable for the long term. The company said it plans to reduce its total U.S. work force from 96,537 people in 2008 to between 65,000 and 75,000 in 2012, but it did not specify how many of the surviving jobs would be salaried or hourly.

Since 2000, GM’s salaried work force has shrunk by 33 percent from its 2000 high of 44,000 people. At the same time, the number of hourly workers has plunged by more than half — to about 63,700 people at the end of last year from 133,000 in 2000.

Most of the cuts announced Tuesday are expected to take place by May 1. GM said the cuts will vary by global regions depending on staffing levels and market conditions.

The company’s statement said there would be no buyout or early retirement packages as GM had offered in the past, but laid-off employees will get severance pay, benefit contributions and other assistance.

GM has yet to announce its fourth-quarter and full-year 2008 financial results, but analysts expect the automaker’s losses to total in the billions of dollars for both periods.

GM reported a $2.5 billion loss in the third quarter alone and said it burned through $6.9 billion in cash during that period, adding to urgent warnings that it would run out of cash without government aid.

No Buyout Or Early Retirement Packages

GM salaried employees who had a buyout offer but did not take it are out of luck. Such offers have been removed.

Mike “Mish” Shedlock
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