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Economy in Brief

U.S. Business Inventories' Gain The First Since 2008
by Tom Moeller December 14, 2009

As the downward momentum in business sales recently slackened, so too did businesses' attitude toward holding inventories. In constant dollars, during 3Q '09 inventory cuts turned into accumulation that added 0.9 percentage points to real GDP growth. In October the turn continued as business inventories rose 0.2%, the first monthly increase since last year. The gain followed a slightly revised 0.5% September drop. Consensus expectations were for a 0.2% decline.

Inventory accumulation last month was apparent in the factory and wholesale sectors. Wholesale inventories rose 0.3% but the gain was largely driven by a 4.6% (+24.1% y/y) increase in petroleum inventories. Elsewhere, accumulation was limited. In the factory sector, inventories posted a modest 0.4% increase after a 1.4% drop. However, the increase also was primarily driven by a 6.4% jump in petroleum inventories.

Retail inventories were unchanged during October as motor vehicle inventories rose 0.6% (-26.6% y/y) after a 4.1% September increase. Furniture inventories also increased by 1.0% (-11.1% y/y) after a 0.2% rise during September. Elsewhere, retail inventories continued to decline, but at a slower rate. Clothing inventories fell 0.6% (-11.3% y/y) which was less than the 1.8% September drop. General merchandise inventories fell negligibly (-6.3% y/y) following a 0.5% September decline. Inventories at building materials and garden supply stores fell 0.7% (-10.1% y/y) after a reduced 0.4% September decline.

For the fifth straight month, business sales rose and the 1.1% (-8.2% y/y) increase reflected across-the-board gains. Retail sales rose 1.3% during October and increased another 1.4% last month. Sales of merchant wholesalers were quite strong for the third month although much of the increase reflects higher oil prices. Factory shipments jumped 3.5% (-1.2% y/y) but again, a 7.0% rise petroleum shipments accounted for much of the total gain.

Despite a possible interest in slowing the rate of inventory cutbacks, the inventory-to-sales ratio for total business fell to a cycle low of 1.30 versus a high of 1.46 in January. The latest was the lowest since last September. In the retail sector the ratio fell and reversed the September increase. For manufacturers and wholesalers, the ratio fell to new cycle lows.

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

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Business Inventories (%) October September August Y/Y 2008 2007 2006
Total 0.2 -0.5 -1.6 -12.6 0.6 4.0 6.4
  Retail 0.0 0.5 -2.6 -13.5 -3.1 2.5 3.3
    Retail excl. Auto -0.2 -0.7 -0.7 -7.6 -1.8 2.7 4.7
  Wholesale 0.3 -0.8 -1.3 -13.5 3.1 6.2 8.2
  Manufacturing 0.4 -1.3 -0.9 -11.2 2.1 3.7 8.2
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