Inventories, Merger Layoffs Suggest Economic Slowdown

Sales by U.S. distributors rose at their slowest pace in five months during April and inventories stopped rising, suggesting the second-quarter slowdown the Federal Reserve Board would like to see may be underway.

In a separate report, a private employment group found that a surge in merger-related layoffs in the last two months could also foreshadow slowing.

The report by Challenger, Gray & Christmas Inc. said more than 16,000 job cuts related to mergers and acquisitions were announced in April and May, reversing last year’s worker-hoarding trend.

In May, mergers and acquisitions sparked 7,970 firings, totaling 29% of 27,631 layoffs announced in the month, Challenger said.

May merger- and acquisition-related layoffs were a slight drop from April’s total of 8,420, but April’s merger-related cuts accounted for only 17% of 48,758 layoffs.

Near the end of last year, strong demand for workers in an extremely tight labor market made companies reluctant to release workers, even following costly mergers, firm principal John Challenger said.

Now, however, companies are disregarding labor shortages and trimming their labor forces after a merger or acquisition, he added.

“This reversal could be an indication that an economic slowdown is being felt by those affected by Asia’s woes, as well as competitive reasons,” Challenger said.

Challenger added that the record-breaking costs of several recent mega-mergers may also be contributing to companies’ desire to maintain healthy profit margins by cutting payrolls.

Meanwhile, the Commerce Department said sales at wholesale companies, such as San Francisco-based McKesson Corp., which distributes pharmaceuticals, rose 0.1% in April, down from a revised 1.2% rise in March and the weakest showing since sales declined last November. Declines in sales of farm products, drugs and apparel held down gains in autos and other durable goods.

Inventories at the country’s distributors fell 0.6% in April--only the second decline in the last nine months--after rising a revised 0.7% in March. Stockpiles of autos and farm products contributed to the inventory decline, Commerce Department figures show.

Fed policymakers, while anxious about the inflationary implications of a rapidly accelerating economy, have been expecting sluggish Asian economies to slow domestic activity. That’s why Tuesday’s report is expected to be welcomed by Fed Chairman Alan Greenspan and his colleagues, who want to see a moderation from the first-quarter 4.8% annual growth rate.

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Wholesale Inventories

Percentage change from previous month:

April: --0.6%

Source: Commerce Department