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 8/13/08 For Jun 2008 | ||||||||||||
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Highlights
Business inventories jumped 0.7 percent in June for the largest monthly rise since November and adding to gains in April and May. The increase may further boost second-quarter GDP which got a boost this morning from an upward revision to June retail sales and yesterday from a much narrower-than-expected trade gap in June. But the gains in inventories may end up to be a negative for third-quarter GDP should growth slow and make it necessary for businesses to work down their inventories at the cost of new production and employment.
Inventories at factories jumped 1.0 percent in June while inventories at wholesalers jumped 1.1 percent, both numbers previously reported. Inventory at retailers is today's new component, showing a 0.1 percent decline following a 0.3 percent decline in May. Retailers are being very careful to keep inventories lean, in line with lean sales and helping to limit the necessity of markdowns. Auto dealers are slashing inventories, down 0.5 percent in June on top of a 0.6 percent decline in May. Yet these declines are still lagging the steeper decline in sales, an imbalance that poses yet another major risk to the auto sector. Department stores are also cutting inventories, down 0.8 percent in June to mark declines for this component in every month of the second quarter.
Talk is building of economic weakness in the third quarter, which if it does unfold will focus more and more attention on inventory data.
Business inventories are being kept in line by most businesses and are generally on the lean side with businesses expecting continued sluggish growth. Business inventories rose 0.3 percent in May, down from a 0.5 percent rise in April. The overall stock-to-sales ratio slipped to 1.24 from 1.25 in April and matched the record low set late last year. With the economy remaining soft, businesses will need to keep a tight rein on inventories.
Business inventories Consensus Forecast for June 08: +0.5 percent
Range: +0.4 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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