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 2/13/08 For Dec 2007 | ||||||||||||
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Highlights
Data for December point to the risk of inventory overhang. Retail inventories excluding autos jumped a swollen 0.7 percent in December with gains posted for nearly every component, in bad news for the retail sector given what turned out to be weak sales in December and not much better sales reported earlier this morning for January. Inventories of autos fell 1.6 percent in December in what is good news for the auto sector where sales are also soft. Overall inventories at retailers slipped a benign looking 0.1 percent.
But including the previously reported 0.8 percent rise in inventories at manufacturers and the previously reported 1.1 percent jump at wholesalers, business inventories rose 0.6 percent in December following a 0.4 percent rise in November. When excluding the auto sector, business inventories jumped 0.9 percent. These numbers, perhaps especially the 0.7 percent rise in ex-auto retail, point to the risk of further inventory build during the slow economic month of January. The nation's purchasers may now be scrambling to keep their inventories down.
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. Businesses in all sectors have been trying to keep a careful watch on inventories, making sure too much overhang does not develop. But a rise in inventories would spell trouble for businesses, indicating a slowing in demand. And the partial numbers for December indicate that may be happening. Wholesale inventories jumped 1.1 percent in December. Also factory inventories rose 0.8 percent in December.
Business inventories Consensus Forecast for December 07: +0.4 percent
Range: +0.2 to +0.7 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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