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 9/12/08 For Jul 2008 | ||||||||||||
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Highlights
Retail inventories are backing up dramatically in what is a second blow for the retail sector, hit this morning with dismal sales results for August. Retail inventories in July jumped 1.5 percent for the sharpest spike in more than two years, pushing the inventory-to-sales ratio 3 tenths higher to 1.48. Accumulation was concentrated in autos where inventories jumped 3.2 percent in the month. Inventories at furniture & electric rose 1.3 percent, building materials up 0.8 percent, apparel up 0.8 percent, and the expansive category of general merchandise up 0.3 percent.
Total business inventories, which also include factories and wholesalers, jumped 1.1 percent in the month for the biggest jump in more than four years. Inventories at wholesalers, who are at the base of the supply chain, were especially worrisome in July, up 1.4 percent. Inventory accumulation may be a plus for third-quarter GDP but it is a dangerous result of economic slowdown, leading to output cutbacks and layoffs. Given today's report on retail sales, businesses appear to have gone into August with excess inventory, if so this points to price markdowns at retailers and a loss of pricing power for businesses.
Business inventories jumped 0.7 percent in June for the largest monthly rise since November. Inventories at factories jumped 1.0 percent in June while inventories at wholesalers jumped 1.1 percent. But retailers have been tight fisted with stocks as retail inventories slipped 0.1 percent. Department stores and auto dealers in particular have been slashing inventories, with inventories falling 0.8 percent and 0.5 percent, respectively, in June. With further slowing in consumer spending, businesses are likely to have pulled back on inventories in July.
Business inventories Consensus Forecast for July 08: +0.5 percent
Range: +0.3 to +0.9 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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