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 11/14/08 For Sep 2008 | ||||||||||||
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Highlights
Business inventories edged 0.2 percent lower in September, a decline that nevertheless, relative to a 2.0 drop in sales, points to inventory accumulation. These data are for September, and data for October, including the record drop in retail sales posted this morning, point to accelerating declines in sales. The mismatch between inventories and sales drove the stock-to-sales ratio 2 tenths higher to 1.29.
Inventories at retailers backed up 0.2 percent in the month. Auto dealers, helped by cutbacks in vehicle output, were fortune enough to trim 0.3 percent from their inventories, excluding which retail inventories jumped 0.4 percent in the month. Inventories rose in all other retail components especially general merchandise.
Inventories at manufacturers and wholesalers, both previously released, offset the rise at retailers, down 0.7 percent and 0.1 percent. Successful inventory management, keeping stocks low and minimizing the degree of cutbacks in output and job cuts, will prove a key element for the recovery.
Business inventories are starting to grow more slowly-but probably not slow enough. Business inventories rose 0.3 percent in August while business sales fell 1.8 percent, pushing up the stock-to-sales ratio by 3 tenths to 1.27. Due to the recent drop in consumer spending, businesses are paring back on stocks to keep inventory costs down. More recent indicators suggest that stocks are still rising too fast-although there are not yet indications that any dramatic inventory overhang is developing. But the latest retail sales numbers for September have dropped off-along with unit new motor vehicle sales, suggesting retail inventories may be a little overstocked. Also, more recently, manufacturing inventories jumped 0.4 percent in September.
Business inventories Consensus Forecast for September 08: 0.0 percent
Range: -0.4 to +0.5 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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