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Economy in Brief

U.S. Business Inventories Fell Further
by Tom Moeller January 14, 2009

Total business inventories fell 0.7% during November and it was the third consecutive monthly decline. Inventories just aren't needed as sales drop. The 6.6% annual rate of decline in inventories during the last three months is the swiftest since early 2002. The sales decline during that period, including the 5.1% November shortfall, was 37.4% at an annual rate. That mismatch left the inventory/sales ratio surging upward to 1.41. The November level was the highest since during the recession of 2001 and the increase in the ratio during the last year is the swiftest since 1982. The reversal ended a twenty eight year downtrend.

Tighter inventory management enabled retailers to buck the uptrend so inventories fell 1.3% during November. That left the three-month change at a negative 5.2%.  Motor vehicle inventories have led the decumulation. Down 1.7% during November, they have fallen at a 9.7% annual rate during the last three months. But they've got further to fall. The inventory-to-sales ratio for automobiles has jumped to 2.57 which is by far a historic high. So unless sales recover soon, expect further production cuts to reduce the ratio.

Outside of autos, retailers have been busy cutting inventory as well. Furniture, home furnishings & electronics inventories fell all of 5.7% in November.  Apparel retailers were busy as well, but less aggressive. Inventories here fell just 0.3% and they've been flat for nearly two years. Unfortunately, given the weak performance of sales the I/S ratio has risen sharply, to its highest level since 2003.  General merchandise inventories fell 0.6% (-0.6% y/y) and that was been very much enough to keep the inventory position in good shape. 

Business Inventories November October September Y/Y 2007 2006 2005
Total -0.7% -0.6% -0.4% 3.3% 3.8% 5.9% 6.0%
  Retail -1.3% -0.2% 0.2% -1.2% 2.6% 3.5% 2.3%
    Retail excl. Auto -1.0% -0.1% 0.4% 0.6% 2.7% 4.9% 3.9%
  Wholesale -0.6% -1.2% -0.4% 6.3% 5.5% 8.3% 7.3%
  Manufacturing -0.3% -0.6% -0.8% 5.1% 3.7% 6.4% 8.9%
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