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Economy in Brief

U.S. Business Inventories Still Being Cut Sharply through June
by Carol Stone August 13, 2009

Business inventories have continued to fall sharply through June, and at all three levels of distribution, manufacturing, wholesale and retail. Total inventories were off 1.1% in June alone, following 1.2% in May and 1.3% in April. The level at end-June was down an amazing 9.8% from a year ago. Factory stocks were off 0.8% in the month and 8.5% from June 2008, wholesale was down 1.7% in June and 10.3% on the year and retail 1.1% in June and 10.8% from June 2008.

No small part of this shrinkage is in the auto industry alone. Wholesale and retail motor vehicle and parts stocks together were down 2.4% in June and 21.9% from June 2008. Apart from auto dealers, retail inventories are down on the year by "only" 5.2% and total business stocks by 7.9%.

There is a distinctly encouraging note in this report on business inventories and sales for June. Sales rose. They were up 0.9% from May, the first month-on-month increase since July 2008. All three sectors participated in the gain, and total sales excluding the auto industry rose 0.8%. The sales improvement helped bring the inventory/sales ratio down to 1.38 from 1.41 in May, the lowest since last October. The auto industry has contributed to this swing too, but in June, the I/S ratio for non-auto industries fell to 1.33 from 1.35 and was also the lowest figure since October.

Today's accompanying data on retail sales for July remind us that the sales picture remains fragile, though [see Tom Moeller's summary of that], so it's clearly premature to conclude that anything fundamental has shifted in the total sales and inventory picture. But at least this one month looks better, and getting the I/S ratios down more puts the economy another step closer to recovery.

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

Business Inventories (%) June May April Y/Y 2008 2007 2006
Total -1.1 -1.2 -1.3 -9.8 0.6 4.0 6.4
  Retail -1.0 -1.7 -1.4 -10.8 -3.1 2.5 3.3
    Retail excl. Auto -0.3 -0.7 -0.7 -5.2 -1.8 2.7 4.7
  Wholesale -1.7 -1.2 -1.3 -10.3 3.1 6.2 8.2
  Manufacturing -0.8 -0.8 -1.2 -8.5 2.1 3.7 8.2
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