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Economy in Brief

U.S. Business Inventory Decumulation Intensifies
by Tom Moeller May 13, 2009

Total business inventories fell another 1.0% during March, down for the seventh straight month. These declines have given rise to a three-month decumulation rate of 13.5%. That is the strongest in the series' history which dates back to 1980. The recent cutback in inventory accumulation is in reaction to an 11.0% rate of decline in business sales. However, the strong inventory cutbacks have done little to reduce the inventory/sales ratio which, at 1.44, was at its highest level since the recession of 2001. Illustrating the degree of inventory back-up is the increase in the I/S ratio during the last year, which is the swiftest since 1982. The rise ended a twenty-eight year downtrend.

Retailers cut inventories by 0.7% in March and at a 13.2% annual rate during the last three months, nearly the fastest in the series' history. Motor vehicle inventories continued to lead the decumulation and fell at a 30.1% rate during the last three months. Nevertheless, the inventory-to-sales ratio for automobiles remained near its historic high at 2.59. So unless sales recover soon, expect further production cuts.

Outside of autos, retailers continued to reduce the levels of unwanted products. Furniture, home furnishings & electronics inventories fell 0.5% in March and they are off 8.6% during the past year. Apparel retailers ratcheted up the speed of cutbacks with a 1.4% March drawdown. Over the last three months they're down at a 9.7% annual rate, nearly the swiftest on record. General merchandise inventories bucked the trend, however, and rose 0.8% in March but they're still off at a 4.8% rate during the last three months. Despite the cuts the inventory-to-sales ratio for the nonauto retail sector remained high.

The business sales and inventory data are available in Haver's USECON database.

Inventory Accelerator In General Equilibrium from the Federal Reserve Bank of St. Louis can be found here.

Business Inventories (%) March February January Y/Y 2008 2007 2006
Total -1.0 -1.4 -1.2 -4.8 0.6 4.0 6.4
  Retail -0.7 -1.2 -1.6 -6.9 -3.1 2.5 3.3
    Retail excl. Auto -0.2 -0.5 -0.6 -3.1 -1.8 2.7 4.7
  Wholesale -1.6 -1.7 -0.9 -3.5 3.1 6.2 8.2
  Manufacturing -0.8 -1.3 -1.1 -3.8 2.1 3.7 8.2
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