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Economy in Brief

U.S. Business Inventory Decumulation Continues At A Record Rate
by Tom Moeller October 14, 2009

Why hold inventories if they're loosing value and the demand outlook is uncertain? These two questions are behind the decumulation which continued through August. Business inventories fell another 1.5% which exceeded expectations for a 0.9% drop. The drop was pervasive amongst businesses and the 14.9% three-month rate of decline is a record.

Retail inventories fell a hefty 2.3% during August. That was led by a 7.9% (-31.1% y/y) drop in auto inventories followed by a 0.3% (-6.4% y/y) shrinkage in nonauto inventories. Furniture inventories (-12.3% y/y) continued down as did clothing inventories (-8.7% y/y). General merchandise inventories posted an uptick but they still were off 4.1% y/y and building materials stores shed 0.6% of inventories (-9.0% y/y. Factory inventories fell 0.8% and at an accelerated 11.5% y/y. Wholesale inventories were off 1.3% and, excluding oil, wholesale inventories fell 1.5% (-15.0% y/y).

Businesses' success in slashing inventories has kept up with recent weakness in sales. As a result, the inventory-to-sales ratio for total business fell to its cycle low of 1.33 versus a high of 1.46 in January. The latest was the lowest since last September.

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

Disagreement About The Inflation Outlook from the Federal Reserve Bank of San Francisco is available here

Business Inventories (%) August July June Y/Y 2008 2007 2006
Total -1.5 -1.1 -1.4 -13.3 0.6 4.0 6.4
  Retail -2.3 -1.0 -1.2 -14.1 -3.1 2.5 3.3
    Retail excl. Auto -0.3 -0.5 -0.5 -6.4 -1.8 2.7 4.7
  Wholesale -1.3 -1.6 -2.1 -14.7 3.1 6.2 8.2
  Manufacturing -0.8 -0.9 -1.1 -11.5 2.1 3.7 8.2
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