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Economy in Brief

U.S. Business Inventory Decumulation Slows
by Tom Moeller November 16, 2009

Perhaps the recent, moderate turnaround in final demand evident in the economy has begun to affect business' inclination to shed inventory. Or maybe there's nothing left on the lot, in the warehouse or on the shelf to let go. Either way, business inventories slipped just 0.4% during September which was one-third of the monthly decumulation averaged back to October of last year. The decline also fell short of Consensus expectations for a 0.7% drop.

The overall slowdown was caused by a 0.6% increase in retail inventories, the first gain since last July. That increase resulted from a 3.8% (-27.9% y/y) rise in auto inventories which also was the first since July of last year. In contrast, the monthly rate of decline in nonauto inventories continued at 0.6% (-7.5% y/y). Furniture inventories increased 0.1% (-12.5% y/y) but clothing inventories fell a sharp 1.7% (-10.8% y/y). General merchandise inventories fell 0.4% and were off 6.3% y/y while building materials stores slipped just 0.1% (-9.6% y/y). Factory inventories fell a hard 1.0%. Meanwhile, wholesale inventories were off 0.9% and the y/y decline reached a nadir of 15.0%. Excluding oil, wholesale inventories fell 0.9% and the 15.4% rate of decline also was a new low.

Despite a possible interest in slowing the rate of inventory cutbacks, the inventory-to-sales ratio for total business held at the cycle low of 1.32 versus a high of 1.46 in January. The latest was the lowest since last September. In the retail sector the ratio moved higher as a result of the auto inventory rise, but at 1.42 it still was the second lowest of the cycle. For manufacturers and wholesalers, the ratio fell to new cycle lows.

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

The Behavior of Household and Business Investment over the Business Cycle from the Federal Reserve Bank of Richmond can be found here.

Business Inventories (%) September August July Y/Y 2008 2007 2006
Total -0.4 -1.6 -1.1 -13.4 0.6 4.0 6.4
  Retail 0.6 -2.6 -1.0 -13.9 -3.1 2.5 3.3
    Retail excl. Auto -0.6 -0.7 -0.5 -7.5 -1.8 2.7 4.7
  Wholesale -0.9 -1.3 -1.6 -15.0 3.1 6.2 8.2
  Manufacturing -1.0 -0.9 -0.9 -11.8 2.1 3.7 8.2
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