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 4/14/08 For Feb 2008 | ||||||||||||
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Highlights
Total inventories rose 0.6 percent in February, an unwanted gain and compared against a 1.1 percent decline in total sales that pushes the stock-to-sales ratio up to 1.28 from January's 1.26. Retail inventories, the new data in today's report, rose 0.2 percent in a very bad sign given a 0.4 percent decline in retail sales and magnified by flat sales in this morning's retail data for March. Inventories at both manufacturers and wholesalers, data previously released, show even more swollen gains with sales declines in both categories even sharper than retail. Remember that imports surged in February, in data released last week, suggesting that incoming materials are exceeding underlying demand. Increased inventories will however give a badly needed boost to first quarter GDP but, given the current state of the economy, today's data point to inventory draw downs and lower production in the second quarter.
Business inventories are showing signs of developing some unwanted overhang and that could dampen manufacturing activity. Business inventories rose 0.8 percent in January, following a 0.7 percent rise in December. These gains would point to inventory building had it not been for a 1.5 percent January jump in business sales. But sales data from February have been weak, highlighted by retail sales in for that month. Also pointing to a likely jump in inventories was a surge in February for imports of motor vehicles and consumer goods. More recently, manufacturers' inventories rose 0.5 percent in February - somewhat slower than the January gain of 1.3 percent but still elevated.
Business inventories Consensus Forecast for February 08: +0.6 percent
Range: +0.4 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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