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Economy in Brief

U.S. Business Inventory Growth Decelerates but I/S Ratio Increases
by Tom Moeller  February 12, 2015

Total business inventories nudged just 0.1% higher in December (3.9% y/y) versus an unrevised 0.2% November rise. During the last three months, inventory growth slowed to 1.8% (AR) from its high of 7.6% late in 2013. Total business sales, however, fell. A 0.9% decline in December (+0.9% y/y) was the fifth consecutive monthly shortfall. It lowered the 3-month change to -6.1% (AR) versus +11.4% as of last April. The resulting inventory/sales ratio for December rose to 1.33, its highest level since July 2009.

Inventories in the retail sector gained 0.5% during December (2.8% y/y). It raised three-month growth to 0.8% but that was below the double-digit growth at the end of 2013. Auto inventories rose 1.3% in December (3.7% y/y) but fell at a 1.1% rate during the last three months. Clothing inventories increased 1.3% (3.2% y/y) and by 9.4% (AR) since September. Furniture inventories rose 0.4% (2.6% y/y) and at a 3.8% rate in the last three months. General merchandise inventories slipped 0.1% (+0.9% y/y) and were off at a 1.5% rate in the last three months.

Merchant wholesale inventories gained 0.1% (6.7% y/y) in December. The 6.0% rate of growth last quarter was up slightly from Q3. Factory inventories declined 0.3% (+2.7% y/y). It lowered three-month growth to -0.7%. This represented decumulation for the first time since 2009.

The 0.9% decline in business sales reflected weakness in the retail sector. A 1.1% December decline (+2.6% y/y) left three-month sales down at a 2.3% rate. Sales excluding motor vehicles fell 1.2% (+1.0% y/y) and at a 4.4% rate since June. Wholesale sales fell 0.4% (+1.4% y/y) leaving three-month sales falling at a 3.4% rate. Factory shipments declined 1.1% (-0.9% y/y) and at an 11.3% rate during the last three months.

The rise in the total business inventory-to-sales ratio to 1.33 reflected gains in each business sector as inventory growth outpaced sales. The factory sector's rise to 1.34 left the ratio at its highest since early-2009. The same was true for the wholesale sector ratio of 1.22. Any build-up at the retail level has been more controlled as the I/S ratio has been moving sideways for a year. The ratio excluding autos, however, rose sharply in the last three months to its highest level since February.

The manufacturing and trade data are in Haver's USECON database.

Manufacturing & Trade (%) Dec Nov Oct Dec Y/Y 2014 2013 2012
Business Inventories 0.1 0.2 0.2 3.9 3.9 4.4 4.9
 Retail 0.5 -0.3 0.0 2.8 2.8 7.2 7.4
  Retail excl. Motor Vehicles 0.1 0.1 0.3 2.4 2.4 3.8 3.2
 Merchant Wholesalers 0.1 0.8 0.6 6.7 6.7 4.3 5.5
 Manufacturing -0.3 0.0 0.1 2.7 2.7 2.3 2.4
Business Sales (%)
Total -0.9 -0.4 -0.3 0.9 3.6 3.4 4.5
 Retail -1.1 0.4 0.2 2.6 3.8 4.3 5.0
  Retail excl. Motor Vehicles -0.9 0.2 0.2 2.1 3.0 3.0 4.2
 Merchant Wholesalers -0.4 -0.4 -0.0 1.4 5.0 4.4 4.8
 Manufacturing -1.1 -1.0 -0.9 -0.9 2.2 2.0 4.0
I/S Ratio
Total 1.33 1.31 1.31 1.29 1.30 1.28 1.28
 Retail 1.43 1.41 1.42 1.43 1.42 1.40 1.38
  Retail Excl. Motor Vehicles 1.24 1.23 1.23 1.24 1.23 1.22 1.22
 Merchant Wholesalers 1.22 1.21 1.20 1.16 1.19 1.17 1.18
 Manufacturing 1.34 1.33 1.32 1.29 1.31 1.29 1.29
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