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Economy in Brief

U.S. Business Inventories and Sales Rise in October
by Gerald D. Cohen  December 16, 2020

• Business inventories increased 0.7% in October still 3.2% below February level.

• Sales gain 0.9%, now 0.9% above January peak.

• Inventory-to-Sales ratio edges down to six-year low of 1.31.

Total business inventories grew 0.7% in October (-4.0% year-on-year) after a slightly upwardly revised 0.8% increase in September (was 0.7%). After falling in the spring, inventories have been on the rise since July, though they are still 3.2% below their February level (inventories peaked in mid-2019). Total business sales gained 0.9% (2.2% y/y), the third consecutive increase of this magnitude. This puts sales 0.9% above their January peak. The inventory-to-sales (I/S) ratio ticked down to 1.31, a six-year low; in April the I/S ratio hit a 27-year high of 1.67. Manufacturing output as well as imports – neither of which are reported in this release – drive a wedge between inventories and sales. Factory production was up 1.1% in October, while goods imports jumped 2.1%.

Business inventory swings can have a meaningful impact on GDP. While inventories added 6.55 percentage point to GDP growth in the third quarter after a 3.50 percentage point drag in the second quarter. These were overshadowed by shifts in the final sales components such as consumption and investment. All of these factors are expected to moderate in the fourth quarter.

Retail inventories increased 0.9% in October (-8.5% y/y). Auto inventories, which comprise roughly 30% of retail inventories, grew 1.0% (-21.3% y/y). Non-auto retail inventories gained 0.8% (-1.5% y/y). General merchandise inventories, the second largest retail sector, was up 1.9% (-1.7% y/y). The troubled department store sector – a subset of general merchandise – saw inventories rise 1.3% (-13.4% y/y). Wholesale and factory sector inventories grew 1.1% and 0.2% respectively (-2.2% and -1.3% y/y).

Retail goods sales were revised down to unhanged in October (was 0.3%) and 8.3% y/y, with both non-auto and auto sales unchanged (7.7% and 10.4% y/y respectively). Note: the advanced retail goods sales data for November was released today showing a 0.8% decline (+7.1% y/y). Wholesale sector sales and shipments from the factories grew 1.8% and 1.0% respectively in October (0.9% and -2.1% y/y).

The inventory-to-sales ratio in the retail sector ticked up to 1.23 from last month's record low of 1.22 (data goes back to 1967). In April, the retail I/S ratio hit a 26-year high of 1.68. The non-auto I/S ratio edged up to 1.11 from its record low of 1.10. The wholesale and factory sector I/S ratios declined to the more typical levels of 1.31 and 1.41 respectively.

The manufacturing and trade, industrial production and international trade data are in Haver's USECON database. Detailed industrial production data can be found in the IP database.

Manufacturing & Trade Oct Sep Aug Oct Y/Y 2019 2018 2017
Business Inventories (% chg) 0.7 0.8 0.3 -4.0 1.9 4.9 3.2
  Retail 0.9 1.6 0.5 -8.5 1.0 4.6 2.4
    Retail excl. Motor Vehicles 0.8 1.0 0.5 -1.5 1.9 3.7 2.2
  Merchant Wholesalers 1.1 0.9 0.5 -2.2 1.7 6.5 3.0
  Manufacturing 0.2 -0.1 0.0 -1.3 2.8 3.6 4.2
Business Sales (% chg)
Total 0.9 0.9 0.9 2.2 1.6 5.9 5.3
  Retail 0.0 1.7 1.1 8.3 3.3 4.2 4.6
    Retail excl. Motor Vehicle 0.0 1.2 1.1 7.7 3.2 5.1 4.9
  Merchant Wholesalers 1.8 0.4 1.2 0.9 0.6 6.8 6.7
  Manufacturing 1.0 0.5 0.3 -2.1 1.0 6.6 4.7
I/S Ratio
Total 1.31 1.32 1.32 1.40 1.39 1.36 1.38
  Retail 1.23 1.22 1.22 1.46 1.46 1.46 1.48
    Retail excl. Motor Vehicles 1.11 1.10 1.11 1.22 1.23 1.22 1.24
  Merchant Wholesalers 1.31 1.32 1.31 1.35 1.34 1.28 1.30
  Manufacturing 1.41 1.42 1.43 1.39 1.38 1.35 1.38
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