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Economy in Brief

U.S. Business Inventories Show a Second Monthly Gain
by Carol Stone January 14, 2010

Business inventories grew again in November, expanding for a second month by 0.4%. These two gains followed 13 consecutive monthly declines.  As in October, the November increase occurred at wholesalers and manufacturers; retailers apart from motor vehicle dealers continued to reduce their stocks of merchandise.  Business sales also grew in November and the resulting inventory/sales ratio fell to 1.28 from 1.30 in October.

The manufacturing and wholesale inventories gains were, as in October, largest for petroleum and also food and farm products.  We presume these are mostly price-driven.  In both sectors, there were also some buildup in stocks of computer equipment and scattered increases in various metals industries.

Total retail inventories resumed downward movement in November after being flat in October.  Cuts were widespread in the nonautomotive segments, especially including furniture, building materials, clothing and general merchandise.  Auto dealer inventories edged up, but just 0.1%, after a 0.6% rise in October, and food stores saw marginal increases both months.

Retailers' inventory/sales ratio fell to 1.37 from 1.40 in October and 1.60 a year earlier.  Wholesalers' sales surged 3.3% in November, pushing their I/S ratio down to 1.14 from 1.17 the month before.  And manufacturers' shipments were up 1.0% in November, so that their I/S ratio decreased to 1.32 from 1.34 in October.  As indicated in the graph, these stock adjustments bring the relationship of stocks to sales back to the general range that was prevailing in the months before the economy's mid-2008 collapse.  With such tight inventory control techniques now in wide use, it's hard to know whether the low inventory positions are so undesirably "low" compared to sales by now that stronger production schedules are guaranteed, but at least the necessary corrections do seem to have been accomplished.

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

Business Inventories (%) November October September Y/Y 2008 2007 2006
Total 0.4 0.4 -0.5 -11.1 0.6 4.0 6.4
  Retail -0.2 0.0 0.5 -12.0 -3.1 2.5 3.3
    Retail excl. Auto -0.4 -0.2 -0.7 -6.6 -1.8 2.7 4.7
  Wholesale 1.5 0.6 -0.8 -11.0 3.1 6.2 8.2
  Manufacturing 0.2 0.6 -1.3 -10.3 2.1 3.7 8.2
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