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 3/13/08 For Jan 2008 | ||||||||||||
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Highlights
Business inventories rose 0.8 percent in January following a 0.7 percent rise in December, gains that would point to inventory building were it not for a 1.5 percent January jump in business sales. But sales data from February have been weak, highlighted by this morning's retail sales report, which raises the risk that inventories are right now rising faster than sales.
Inventories at retailers rose 0.4 percent in January against a 0.5 percent rise in sales. But again, the retail category will be a wildcard for February data. In data previously reported, factory inventories rose 1.3 percent in January vs. sales of +1.1 percent, while wholesale inventories rose 0.8 percent, well under a 2.7 percent rise in sales that suggests wholesalers, burned by a sales drop in December, are especially cautious.
Inventories fortunately haven't played a role yet in the economic slowdown, but if they should it would be one of the most serious negatives yet for the outlook.
Business inventories can lead to adjustments in manufacturing or in imports if inventory levels rise faster than sales. The latest numbers in December pointed to the risk of inventory overhang with a 0.6 percent jump in December, following a 0.4 percent rise in November. Gains were seen at the retail level and especially at the manufacturing and wholesale levels.
Business inventories Consensus Forecast for January 08: +0.5 percent
Range: +0.1 to +0.8 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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