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Economy in Brief

U.S. Business Inventory Decumulation Remains Strong and Steady
by Tom Moeller June 11, 2009

As worried as they are about the sales environment, businesses have taken the practice of shedding their inventories at the fastest rate in nearly thirty years. Total business inventories fell another 1.1% during April, down for the eighth straight month. These declines have given rise to a three-month decumulation rate of 14.1%. That is near the strongest in the series' history which dates back to 1980. The recent cutback in inventories is in reaction to an 8.3% rate of decline in business sales, though that rate of decline has eased a bit lately.

The troubling factor behind this equation is that the strong inventory cutbacks have done little to reduce the inventory/sales ratio which, at 1.43, was near its highest level since the recession of 2001. Emphasizing the magnitude of the inventory back-up is the increase in the I/S ratio during the last year, which is the swiftest since 1982 and it's still near its high. The rise ended a twenty-eight year downtrend.

Retailers cut inventories by 1.0% in April and at an 11.9% 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 26.6% rate during the last three months. Recent inventory cutbacks, along with some stabilization of sales, finally is working to lower the inventory-to-sales ratio for automobiles to where it was during the Spring of 2008.

Outside of autos, retailers continued to reduce the levels of unwanted products. Furniture, home furnishings & electronics inventories fell just slightly during April (9.7% y/y) but the rate of decline appears to be easing. Conversely, apparel retailers haven't backed off at all from their efforts to reduce unwanted inventory. Over the last three months they're down at a 12.7% annual rate, the swiftest on record. General merchandise inventories rejoined the trend toward reducing stores of unwanted products. Inventories fell 0.6% in April after a slight March increase and they're off at a 6.3% annual rate during the last three months. The cuts in inventory accumulation have gone some distance in reducing the inventory-to-sales ratio for the nonauto retail sector, but it still remained high.

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

The Systemic Importance of Consumer Protection is today's speech by Fed Governor Elizabeth A. Duke and it is available here.

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

Business Inventories (%) April March February Y/Y 2008 2007 2006
Total -1.1 -1.3 -1.4 -6.6 0.6 4.0 6.4
  Retail -1.0 -0.9 -1.2 -8.5 -3.1 2.5 3.3
    Retail excl. Auto -0.5 -0.3 -0.5 -4.4 -1.8 2.7 4.7
  Wholesale -1.4 -1.8 -1.7 -6.2 3.1 6.2 8.2
  Manufacturing -1.0 -1.2 -1.3 -5.1 2.1 3.7 8.2
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