Many people have crowed about the November wholesale inventory and sales report this morning on ToutTV:

Sales:
The U.S. Census Bureau announced today that November 2009 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $337.4 billion, up 3.3 percent (+/-0.7%) from the revised October level and were up 0.6 percent (+/-1.6%)* from the November 2008 level.

Not awful, but not much-changed from November 2008.  But let's look at inventories:

Inventories:
Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $386.3 billion at the end of November, up 1.5 percent (+/-0.4%) from the revised October level, but were down 11.0 percent (+/-1.1%) from a year ago.

Aha.

So on an annualized basis we have a small increase (this removes seasonal changes) from shipments in the month ahead of Christmas, but inventories continue to be drawn down from levels prior to last Christmas.

This makes perfect sense; last Christmas retailers and wholesalers got caught with a huge amount of unsold inventory and had to slash prices to get it to move.  This year they came in much leaner, as the numbers now show - and back up the anecdotes.

But the 0.6% increase in sales on an annualized basis hardly shows "significant" economic recovery.  This, in turn, was born out by the employment situation report this morning.

The internals of report (unadjusted) are a bit nastier.  Sales of durables were down 4.2% on an annualized basis, made up for by a large boost in non-durables.  The largest contributors to the positive movement were in places you don't want to see them - farm products and petroleum - as those both signal major price inflation pressures in the coming months.  Drugs were up 7.1% annualized (gee, that'll be good for price inflation and personal disposable income too, right?)

In durables the downstrokes were also in places you don't want to see them - furniture and lumber (construction does flag in the winter, but this is particularly bad) along with metals and machinery, both of which took a huge dive (-38.7 and -19.8 respectively.)

All in all I don't like it.  The inventory contraction is healthy for a "new normal" but the price signals being sent from some of the internals are trouble, and when looked at from an annualized basis (which is what counts to remove seasonal influence) there's nothing to cheer about in this report.  It's not a disaster, but it does signal potential price inflation trouble in the year ahead - especially if oil continues to spike higher.