US: Business Inventories


Fri Dec 11 09:00:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Inventories - M/M change 0.1% 0.0% to 0.3% 0.0% 0.3% 0.1%

Highlights
Businesses appear to be putting the brakes on inventories which however are still rising a bit relative to sales. Business inventories were unchanged in October with September revised down 2 tenths to plus 0.3 percent in readings that will pull down the GDP outlook slightly. Sales came in unchanged which is just enough to drive up the stock-to-sales ratio to 1.38 from 1.37. This time last year, this reading was at 1.31.

All three components show only the most minimal change in inventories, up 0.1 percent for retailers and down 0.1 percent for both manufacturers and for wholesalers. And sales tell the story, unchanged in October for both retailers and wholesalers and down 5 tenths for manufacturers.

The lack of punch in the economy, the result of weak foreign demand, continues to put upward pressure on inventories. But businesses are successfully keeping their stocks as low as possible, thereby limiting future corrections in production and employment.

Market Consensus Before Announcement
Business inventories are widely considered to be too heavy relative to sales, posing risks to future production and also to future hiring. Inventories rose 0.3 percent in the September report, against no change for sales in a mismatch that drove the inventory-to-sales ratio up one notch to 1.38, well up from 1.31 in September last year. Forecasters see inventories rising 0.1 percent in October.

Definition
Business inventories are the dollar amount of inventories held by manufacturers, wholesalers, and retailers. The level of inventories in relation to sales is an important indicator of the near-term direction of production activity. (Bureau of the Census)



Description
Investors need to monitor the economy closely because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more moderate growth that won't generate inflationary pressures.

Rising inventories can be an indication of business optimism that sales will be growing in the coming months. By looking at the ratio of inventories to sales, investors can see whether production demands will expand or contract in the near future. For example, if inventory growth lags sales growth, then manufacturers will have to boost production lest commodity shortages occur. On the other hand, if unintended inventory accumulation occurs (that is, sales do not meet expectations), then production will probably have to slow while those inventories are worked down. In this manner, the business inventory data provide a valuable forward-looking tool for tracking the economy.