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 12/13/07 For Oct 2007 | ||||||||||||
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Highlights
Business inventories rose 0.1 percent in October, well below a 0.7 percent rise in business sales and what is good news for the economic outlook. The inventory build in the third quarter raised concern that inventories are too high given the outlook for slowing economic growth. Today's results suggest that businesses are successfully paring back their stocks.
Retailer inventories are the new data in today's report, showing a 0.4 percent rise and a 0.7 percent rise excluding autos. These gains are on the high side but are not excessive given today's strong retail sales report for November. Factory inventories and wholesaler inventories were previously reported showing a muted 0.1 percent rise for factories and no change for wholesalers. A look at overall year-on-year rates shows inventories rising 3.2 percent, well under a 6.9 percent rise for sales.
Earlier this week the Institute For Supply Management issued its semi-annual report which showed that the nation's purchasers are not concerned about excessive inventory. Today's data may be overlooked by the financial markets but, again, they are a nice positive for the economic outlook.
Business inventories rose 0.4 percent in September, in a gain that's on the high side though still under a 0.6 percent rise for business sales that held the stock-to-sales ratio at 1.27. Excluding auto dealers, business inventories were a little more swollen with a gain of 0.5 percent. Inventories at furniture stores and department stores showed especially steep gains, reflecting in part the recession in housing. Overall, inventories are putting pressure on manufacturers to slow production and for businesses to cut back on imports. Inventories are likely to rise notably as U.S. demand has softened. As usual, the devil is in the details and one will have to look at subcomponents to see if inventory impact will be more on domestic production or on imports.
Business inventories Consensus Forecast for October 07: +0.3 percent
Range: +0.1 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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