Friday, March 13, 2009

Inventories...Negative = Positive

Some more positive data came out yesterday I initially missed. While it may be counterintuitive at first to think a drop in inventories is a positive thing for future economic growth, when inventory needs to be replaced, production that was sitting on the sidelines is put back to work. Forbes reports:

Business inventories fell 1.1% in January, more than the consensus 1.0% decline and the fifth consecutive monthly drop, the Commerce Department reported today.

Inventories were down in all major sectors in January. Manufacturing inventories fell 0.8%, wholesale inventories fell 0.7%, and retail inventories dropped 1.7%, the largest decline since November. Within retail, auto dealer inventories fell by 4.4%, the largest drop since July 2005.

The retail sales number that came out with the inventory data is one month behind the retail sales data Commerce put out earlier today. Commerce's earlier release revised January retail sales up to a 1.8% increase, the largest gain in three years.



Source: Census
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2 comments:

  1. David Templeton, CFAMarch 13, 2009 at 5:39 AM

    I agree the inventory drop is positive; however, the inventory to sales ratio remains at a high level, i.e., 1.43. This points to a faster fall off in sales versus the inventory decline. One area of concern in the I/S data was the increase in the I/S ratio for the consumer discretionary categories on a year over year basis as noted in my post yesterday.

    Not Convinced This Is "THE" Bottom-Yet

    Keep up the good work you publish on your site.

    David

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  2. JakeMarch 13, 2009 at 6:05 AM

    david. we'll see how inventories look for february (they are a month lagged), but january sales were up 1.8% month over month, while inventories were down...

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