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Economy in Brief

U.S. Inventories Are Flat in March But Positive Momentum Still Seems in Train
by Robert Brusca  May 15, 2018

Inventories, whose growth had outpaced sales in previous months, were back to zero growth in March. Meanwhile, the pace of sales overall held at a 0.5% gain in March, the same pace as in February.

Over three months we see that the excess of sales growth has slipped into a deficit relative to sales; inventory growth is outpacing sales. This is a new development and one that does not hold up in the monthly data. Inventory-to-sales ratios, expressed as a percentile standing over the past five years, find that the current inventory-to-sales ratio has only a 50.7 percentile standing- right on top of its historic median which occurs at a 50 percentile standing.

Inventories according to the I-to-S standings are not excessive either overall or on a sector basis. They are moderate to lean.

Inventory growth slowed to flat in March after several months of overstepping the pace of sales growth. But now that is reversed in March. In retailing, sales rose strongly enough in March that inventory levels actually fell. The inventory-to-sales ratio in retailing is now below its median of the last five years, paving the way of inventory rebuilding to occur, especially with the step up in the pace of sales.

The one negative in the report is that trends for sales show that sales over three months have diverged and slowed from the pace of six-month and 12-month. For wholesaling, sales over three months are actually falling. Monthly data place the reason for the three-month sales slowdown as a decline in January for most sectors. Since then, sales have inched back up. For the time being, sales trends are slightly weaker than they have been, but monthly trends suggest that the drop off may have been arrested. Inventory-to-sales ratios are moderate and pose no reason for further inventory entrenchment. Sales in retailing importantly have picked up in monthly data, rising by 0.7% in March and showing a further but slower rise in April (however, that is a bit outside the scope of this report). Still, the news is that sales generally continue to grow and that inventory-to-sales ratios are lean. Wholesaling is the exception. Inventories likely will continue to grow.

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