Business inventories are the dollar amount of inventories held by manufacturers, wholesalers, and retailers. The level of inventories in relation to sales is an important indicator of the near-term direction of production activity. Why Investors Care
| Released on 2/14/07 For Dec 2006 | ||||||||||||
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Highlights
Business inventories were unchanged in December while business sales rose 1.4 percent, driving the stock-to-sales ratio down 2 tenths to 1.28. Government data had estimated a stronger inventory reading, a negative for the first fourth-quarter GDP revision later this month.
The new data in today's report are retailer inventories, which rose 0.3 percent. Note that some major retailers and some of their suppliers have since reported declines in inventories.
The outlook for January inventories is uncertain given sharp inventory declines in the ISM reports that suggested supply managers, perhaps seeing slower demand ahead, have suddenly grown concerned over rising stocks. Durable goods data later in the month will offer the first hard look at January inventories.
Business inventories rose a moderate 0.4 percent in November, following a gain of 0.2 percent in October. More recently, manufacturers inventories slowed to a 0.1 percent increase in December from a 0.2 percent rise the month before. The latest manufacturing inventory figure will likely help slow the overall inventory number.
Business inventories Consensus Forecast for December 06: 0.0 percent (flat)
Range: -0.2 to +0.3 percent
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Inventories tend to rise when economic conditions are strong; since sales are rising at the same time, the inventory-to-sales ratio may remain stable, or rise at a very slow pace. Inventories tend to drop when economic conditions are weak; since sales are falling at the same time, the inventory-to-sales ratio may remain relatively stable. The I-S ratio then begins to rise as sales fall more quickly than inventory growth. |
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