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 1/15/08 For Nov 2007 | ||||||||||||
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Highlights
Business inventories rose 0.4 percent in November, well below a 1.6 percent rise in sales to drive the stock-to-sales ratio down 2 tenths to a record lean 1.24. But business sales in November are not that important given the decline in December retail sales reported earlier this morning and rising concern of economic slowing. Inventories at retailers, the new information in today's report, fell 0.1 percent, good news suggesting that inventories were lean going into the disappointment of December. Retailers, based on their statements last week, were very careful in December to manage inventories, with many chains aggressively marking down prices to keep shelves from backing up.
Businesses in all sectors appear to be managing their inventories with unusual care, underscored this morning by the Empire State report that showed contracting inventories so far this month in the New York area manufacturing sector. Inventories this time last year were building up for what proved to be a mini-overhang, relieved in the early spring by a surge in economic growth.
Business inventories rose 0.1 percent in October, well below a 0.7 percent rise in business sales. But inventories may be starting to be a modest problem. More recent data show a 0.8 percent spike in manufacturers' inventories for November and we got a surge in November imports which may still be sitting on store shelves. With the economy slowing, businesses may have a mild inventory problem to deal with. With the economy at a possible turning point, markets should be paying more attention to the inventory numbers.
Business inventories Consensus Forecast for November 07: +0.5 percent
Range: +0.2 to +0.6 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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