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Wednesday, October 14, 2009

Good News Alert: Inventories Cliff Dive

Marketwatch details:

Paced by a large draw-down in autos, business inventories fell 1.5%, matching the largest percentage decline ever recorded in the 17-year history of the data. Inventories also fell 1.5% in December 2008 and in October 2001.

It was the 12th consecutive month of falling inventories. Read the full report.

Economists surveyed by MarketWatch were expecting a 1% drop in inventories. See Economic Calendar.

Meanwhile, sales increased 1% in August, which were also boosted by the government's cash-for-clunkers deal. The figures are not adjusted for price changes, but are adjusted for seasonal variations.

Inflation-adjusted business sales are one of four key indicators used to determine if the economy is in recession or expansion. The others are nonfarm payrolls, personal incomes, and industrial production
The good news is this sets up the "Mother of All Inventory Corrections" we've all been waiting for, but when? Well, inventories are at late 2005 levels (good for the inventory correction story), but sales are at early 2005 levels (not good for the inventory correction story).

My guess is that inventories continued to decline in September, but at some point the rebound (or even flattening in sales) will require a replenishment of inventories.

Source: Census