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Economy in Brief

U.S. Businesses Inventories Fall Further
by Tom Moeller April 14, 2009

Inventory decumulation remains a dominant trend behind the current economic downturn. Decumulation subtracted 0.3 percentage points from GDP growth last year after a 0.4 percentage point subtraction in 2007, even before the recession started. That degree of subtraction probably intensified early this year. Business inventories dropped 1.3% m/m during February. The decline followed a similar January shortfall and it was the sixth consecutive monthly dip. Over just the last three months, inventories have fallen at a 15.2% annual rate, a record for the series which dates back to 1980.

Lower business sales (not to mention the weakness in pricing) continues to propel the inventory correction. Though sales rose 0.2% in February they are down at a 16.2% annual rate over the last three months. The only good news is that the recent rate of decline in sales eased to -16.2% from the peak -40.7% rate this past fall.

Retailers' inventories fell another sharp 1.2% during February. The three-month rate of decline remained quite strong at 16.3% which was just off the record. The motor vehicle sector has led that decline, shedding inventories at a 32.1% rate over the last three months. Accentuating the downward trend, non-auto retail inventories fell at an 8.6% rate since the fall. Furniture inventories have been dropped at a 15.7% annual rate during the last three months while there's been a 13.5% rate of inventory reduction amongst general merchandise retailers. Rounding out the picture is a 6.2% rate of decline amongst apparel sellers. These cutbacks have been enough to drop the inventory-to-sales ratio amongst retailers to its lowest level since last September.

The inventory cutbacks overall, however, have done little to reduce the I/S ratio for total business. It remained in February near its highest level since 2001 due the wholesale and the factory sectors.

The Peopling of Macroeconomics: Microeconomics of Aggregate Consumer Expenditures from the Federal Reserve Bank of Philadelphia can be found here.

Business Inventories (%) February January Y/Y 2008 2007 2006
Total -1.3 -1.3 -3.5 0.6 4.1 6.5
  Retail -1.2 -1.8 -6.6 -3.2 2.9 3.5
    Retail excl. Auto -0.4 -0.7 -3.2 -1.8 2.9 4.9
  Wholesale -1.5 -0.9 -1.7 3.1 6.2 8.2
  Manufacturing -1.2 -1.1 -2.0 2.1 3.7 8.2
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