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 7/13/07 For May 2007 | ||||||||||||
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Highlights
Business inventories rose 0.5 percent in May, well under a 1.3 percent rise in business sales that pushed the stock-to-sales ratio down 1 tenth to a very lean 1.26. Inventories at retailers, the new data in the report, rose 0.6 percent, well under a 1.6 percent rise in sales. Today's soft retail sales report points perhaps to a switch next month, that is rising inventories relative to sales. But many chain stores in yesterday's statements said they were keeping inventories down through marks down and promotions. May saw inventory declines in furniture and building materials which likely reflect, not a draw down from strong sales, but decisions by retail supply managers to cut back on these items.
The other components in today's report were previously released: a 0.5 percent rise in wholesale inventories and a 0.3 percent rise in factory inventories. The bottom line is that inventories are lean and well positioned, not posing a risk of overhang should demand slow and pointing to inventory building should demand rise.
Business inventories rose 0.4 percent in April and trailed a 0.7 percent rise in business sales that shaved 1 tenth off the stock-to-sales ratio to 1.27. The low inventory ratio is good for preventing the buildup of unwanted inventories and supports further gains in manufacturing and in imports. More recently, manufacturers' inventories were up a moderate 0.3 percent in May - down from up 0.4 percent in April.
Business inventories Consensus Forecast for May 07: +0.3 percent
Range: +0.3 to +0.4 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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