U.S. wholesale inventories rose 0.3% in January as sales tumbled 1.3%

U.S. wholesale inventories unexpectedly rose in January as sales tumbled, suggesting that efforts by businesses to reduce an inventory overhang could persist well into 2016 and restrain economic growth in the coming quarters.

The Commerce Department said on Wednesday wholesale stocks increased 0.3 percent after being unchanged in December. Sales declined 1.3 percent, extending December’s 0.6 percent drop.

January’s weak sales pace means it would take wholesalers 1.35 months to clear shelves, the highest inventory-to-sales ratio since April 2009, when the economy was in recession.

“Plenty of inventory pain remains in the pipeline. Wholesale inventory growth has beaten sales growth since mid-2014 to leave a steep inventory-to-sales ratio spike that is usually only seen in recessions,” said Michael Englund, chief economist at Action Economics in Boulder, Colorado.

Inventories are a key component of gross domestic product change. They have been a drag on GDP growth since the third quarter of 2015.

But economists were little concerned that the high inventory-to-sales ratio signaled a recession, noting that the jump had been driven by a rise in the stocks of nondurable goods such as drugs, paper and farm products.

In addition, strong consumer spending and a firmer housing market, against the backdrop of a tightening labor market, are keeping the economy on steady ground.

“We take limited signal on the overall economy from such an outturn. That said, stronger inventory growth mechanically boosts current quarter GDP estimates,” said Jesse Hurwitz, an economist at Barclays in New York.

Government data last week showed businesses had made less progress than initially thought reducing the inventory bloat in the fourth quarter. Inventories subtracted just over one-tenth of a percentage point from fourth-quarter GDP growth.

Economists polled by Reuters had forecast inventories falling 0.2 percent in January. The component of wholesale inventories that goes into the calculation of GDP – wholesale stocks excluding autos – edged up 0.1 percent in January.

January’s surprise rise in wholesale inventory investment prompted economists to lift their first-quarter GDP growth estimates by as much as two-tenths of a percentage point to as high as a 2.4 percent annualized rate.