What Is Wholesale Trade?

Wholesale trade is an economic indicator that measures the value in U.S. dollars of all merchant wholesalers' sales and inventories. Wholesale trade is one component of business sales and inventories. Only those firms that sell to governments, institutions, and other businesses are considered part of wholesale trade.

Understanding Wholesale Trade

According to the Bureau of Labor Statistics (BLS), the wholesale trade sector includes the sale of merchandise that is outputted from manufacturing, agriculture, mining, publishing, and some other information industries.

Wholesaling is considered to be an intermediate step in the overall distribution of merchandise and goods. A wholesaler sells or organizes the transaction for the resale of goods to other wholesalers or retailers. They might also arrange the sale or purchase of raw materials, supplies for production, or durable consumer goods.

Typically wholesalers operate from a warehouse or office facility and sell goods to other businesses. Such transactions are rarely done through walk-in business as the operation is not established, nor advertised for, that type of activity. Traditionally, wholesalers do not market their services to the general public. They conduct business with vendors or retailers who are part of the overall supply and sales chain.

While wholesale trade is separate from consumer sales transactions, wholesalers are part of the channel that feeds consumer trade. The relationships between wholesalers and their customers may be long-standing with new orders and follow-ups coming in as those retailers and vendors need more merchandise.

How Wholesale Trade Data Is Used

Wholesale-trade data gives investors a closer look at the consumer economy, as wholesalers' sales and inventory numbers can be a leading indicator of consumer trends. By looking at the ratio of sales to inventories, investors can see whether or not production may grow or slow in the future.

For example, if inventories are growing more slowly than sales, producers will have to make more product so that no shortages occur. Alternatively, if sales growth is slower than inventory growth, there will be an excess of supply, and production should slow in the coming months.

Because manufacturing is such a large part of gross domestic product (GDP), the wholesale-trade data can be a valuable tool for keeping a finger on the pulse of the economy. Equity markets are positively affected by an increase in production, as corporate profits tend to increase. The bond markets, on the other hand, prefer moderate growth so as to stem inflation.