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 5/13/08 For Mar 2008 | ||||||||||||
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Highlights
Businesses are putting the brakes on inventories, hopefully quick enough to avoid overhang during a flat period of economic growth. Business inventories rose only 0.1 percent in March, pulled lower by a 0.5 percent drawdown at retailers. Retail sales data for April, released this morning, thankfully showed strength. Firm sales and inventory contraction is the ideal mix right now, helping to limit the degree of future dislocations especially job cuts. Wholesalers cut back inventories in the month but manufacturers, whether they wanted to or not, added to inventories. But overall, the results are positive, indicating that supply chain factors are not complicating the economic outlook.
Business inventories jumped 0.6 percent in February. This unwanted gain combined with a 1.1 percent decline in total sales and pushed the stock-to-sales ratio up to 1.28 from January's 1.26. Unless businesses slow the growth in inventories, there will likely be a notable inventory correction, paid in part by U.S. manufacturers. The overhang is not yet substantial but it could be headed there. More recently, manufacturers' inventories posted a 0.9 percent surge in March after rising 0.7 percent the month before. Fortunately, a notable share of the durables gain was either export related or defense related. For nondurables, much was price related with oil and grain commodities behind part of the boost.
Business inventories Consensus Forecast for March 08: +0.5 percent
Range: +0.2 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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