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Economy in Brief

Slower U.S. Sales Require Slower Inventory Accumulation
by Tom Moeller November 15, 2006

Total business inventories rose just 0.4% in September following an unrevised 0.6% rise during August. Consensus expectations had been for a 0.5% increase but together the increases during the last three months which averaged 0.6% were the slowest since April and the one month gain was the slowest since February.

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 fell 2.0% (+4.9% y/y) due to the 3.5% m/m slide in factory shipments. In addition, retail sales fell 0.8% (+5.2% y/y) and wholesale sales fell 1.2% (+8.1% y/y). As a result the inventory to sales ratio surged to 1.30, the highest since March 2003.

Retail inventories fell 0.1% but excluding autos they rose 0.1%. That latter gain compared to monthly increases between 0.2% and 0.7% since March. General merchandise inventories increased 0.3% (0.9% y/y) after a 0.7% gain but accumulation of clothing store inventories accelerated to 0.7% (6.2% y/y). Furniture inventories rose 0.2% (4.9% y/y) after a 0.3% August decline.

Production and Inventory Behavior of Capital from the Federal Reserve Bank of St. Louis is available here.

Business Inventories September August Y/Y 2005 2004 2003
Total 0.4% 0.6% 7.6% 4.4% 7.6% -1.0%
  Retail -0.1% 0.3% 6.1% 2.7% 6.7% 3.8%
    Retail excl. Autos 0.1% 0.6% 4.3% 4.5% 7.1% 1.9%
  Wholesale 0.8% 1.2% 9.9% 7.1% 9.8% 1.8%
  Manufacturing 0.6% 0.6% 7.4% 4.0% 6.9% -7.4%
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