What Is Wholesale Trade?

What Is Wholesale Trade?

Let me explain wholesale trade directly: it's an economic indicator that measures the value in U.S. dollars of all merchant wholesalers' sales and inventories. You should know that wholesale trade is just one part of overall business sales and inventories. Remember, only those firms that sell to governments, institutions, and other businesses count as part of wholesale trade.

Key Takeaways

As an investor, you can use wholesale-trade data to get a closer look at the consumer economy, since wholesalers' sales and inventory numbers often signal upcoming consumer trends. By examining the ratio of sales to inventories, you can determine if production might grow or slow down ahead. Again, only firms selling to governments, institutions, and other businesses are included in wholesale trade.

Understanding Wholesale Trade

According to the Bureau of Labor Statistics (BLS), the wholesale trade sector covers the sale of merchandise from manufacturing, agriculture, mining, publishing, and some information industries. Wholesaling is an intermediate step in distributing merchandise and goods. A wholesaler sells or arranges transactions for reselling goods to other wholesalers or retailers. They might also handle sales or purchases of raw materials, production supplies, or durable consumer goods.

Typically, wholesalers work from warehouses or offices and sell to other businesses. These transactions aren't for walk-in customers because the operations aren't set up or advertised that way. Traditionally, wholesalers don't market to the general public; they deal with vendors or retailers in the supply and sales chain.

While wholesale trade is distinct from consumer sales, wholesalers feed into the consumer trade channel. Relationships between wholesalers and their customers can be long-term, with ongoing orders as retailers need more merchandise.

Important Note

You should note that the United States Census Bureau provides monthly and annual wholesale trade reports.

How Wholesale Trade Data Is Used

Wholesale-trade data lets you, as an investor, examine the consumer economy closely, with sales and inventory figures acting as leading indicators of consumer trends. Looking at the sales-to-inventories ratio shows if production will ramp up or slow down soon.

For instance, if inventories grow slower than sales, producers must increase output to avoid shortages. If sales grow slower than inventories, there's excess supply, so production should decrease in coming months.

Since manufacturing is a big part of gross domestic product (GDP), wholesale-trade data is a key tool for gauging the economy's pulse. Equity markets benefit from increased production, boosting corporate profits. Bond markets, however, favor moderate growth to control inflation.