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 10/15/08 For Aug 2008 | ||||||||||||
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Highlights
Businesses are putting the brakes on inventories but it may not be fast enough given the size of the fall in sales. Business inventories rose 0.3 percent in August but business sales fell 1.8 percent, pushing up the stock-to-sales ratio by 3 tenths to 1.27.
Inventories at retailers fell 0.6 percent with inventories at auto dealers, in a real plus, falling 1.6 percent. But dealer inventories, after swelling 3.1 percent in July, are still high, and supply chain problems may yet magnify the effects of the violent downshift underway in auto demand. A rise in inventories of building materials is definitely a concern given steep declines in sales that extend into this morning's retail sales report for September.
Inventories may end up adding to third-quarter GDP but it won't be a positive for the economic outlook. Unwanted inventory is an imbalance that trips downswings in output and jobs.
Business inventories have started to back up sharply as overall inventories jumped 1.1 percent in July for the biggest jump in more than four years. Retail inventories in July spiked 1.5 percent while wholesaler inventories were up 1.4 percent. Manufacturers' inventories rose a more moderate 0.5 percent.
Business inventories Consensus Forecast for August 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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