Wholesale inventories fell by much more than economists had been expecting in the month of February, according to a report released by the Commerce Department on Wednesday, although the report also showed an increase in wholesale sales.

The report showed that wholesale inventories fell 1.5 percent in February following a revised decrease of 0.9 percent in January. Economists had expected inventories to fall by 0.6 percent compared to the 0.7 percent decrease originally reported for the previous month.

A 2.4 percent decrease in inventories of durable goods contributed to the bigger than expected drop, with automotive inventories showing a notable 7.9 percent decrease. Inventories of non-durable goods showed a much more modest 0.2 percent decrease.

Peter Boockvar, equity strategist at Miller Tabak, said, While the drop in inventories will be a drag on first quarter GDP, it is the set up for those that believe we will see a 2nd half recovery, as inventories will eventually need to be replenished.

It may happen, but an inventory led recovery is not sustainable unless end demand picks up on a sustainable basis, and when that will occur is much more unclear, Boockvar added.

As mentioned above, the report also showed that wholesale sales edged up 0.6 percent in February following a 2.4 percent decrease in January. The increase in sales came on the heels of seven consecutive monthly decreases.

The modest rebound in wholesale sales came as a 2.0 percent increase in sales of durable goods more than offset a 0.4 percent decrease in sales of non-durable goods.

With wholesale inventories falling and wholesale sales rising, the wholesale inventories/sales ratio fell to 1.31 in February from 1.34 in January. The ratio remains well above the 1.14 seen in February of 2008.

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