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Economy in Brief

U.S. Business Inventory Accumulation Highest Since 2005
by Tom Moeller October 13, 2006

Total business inventories rose 0.6% in August following an upwardly revised 0.7% July gain. Consensus expectations had been for a 0.5% increase. The gain lifted the y/y rate of business inventory accumulation to its highest (7.7%) since early 2005.

During the last ten years there has been a 57% correlation between the y/y change in business inventories and the change in factory sector industrial production. Using quarterly figures, there has been an 84% correlation between the change in real private nonfarm inventories and production.

Business sales rose 0.8% (8.1% y/y) on the strength of higher wholesale sales (12.5% y/y) and higher factory shipments (6.1% y/y). The inventory to sales ratio was stable for the third month at 1.26, but was above the May low of 1.25.

Retail inventories rose 0.5% and that's the same rate of increase excluding autos (4.4% y/y) which rose 0.5% (14.1% y/y). Higher building materials inventories led the rise with a 1.0% (9.4% y/y) gain. General merchandise inventories grew 0.7% (0.7% y/y) and clothing store inventories rose 0.4% (5.8 y/y). Furniture inventories fell 0.3% (+4.4% y/y).

Wholesale inventories surged another 1.1% (9.7% y/y) in August though petroleum inventories fell 6.5% (+9.7% y/y). Drug and chemical inventories surged while durables rose 0.9% (10.0% y/y).

Factory inventories rose 0.4%, half the prior month's rate of accumulation.

Understanding How Employment Responds to Productivity Shocks in a Model with Inventories from the Federal Reserve Bank of Richmond can be found here.

Business Inventories August July Y/Y 2005 2004 2003
Total 0.6% 0.7% 7.7% 4.4% 7.6% -1.0%
  Retail 0.5% 0.4% 7.5% 2.7% 6.7% 3.8%
    Retail excl. Autos 0.5% 0.3% 4.4% 4.5% 7.1% 1.9%
  Wholesale 1.1% 0.9% 9.7% 7.1% 9.8% 1.8%
  Manufacturing 0.4% 0.8% 6.5% 4.0% 6.9% -7.4%
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