Business Inventories Rise, Still High To Relative Sales

Business inventories rose 0.1 percent in December which however was still too high relative to sales which fell a very sharp 0.6 percent. This mismatch drives the inventory-to-sales ratio to 1.39 from 1.38. By contrast, this ratio, back in December 2014, was at a much tighter 1.33.

By industry, retail inventories rose 0.4 percent in December and were skewed higher by a 0.9 percent surge at auto dealers. This vehicle build is probably a positive given strength this morning in the motor vehicle component of the January retail sales report. But builds elsewhere are a concern including for manufacturing where inventories rose 0.2 percent in the month. Wholesalers, whose sales have been steadily falling, have been quick to lower stocks, down 0.1 percent in December for the third draw in a row.

Businesses are struggling with inventories right now, in general trying to keep them down as sales slow. Looking ahead, if inventory growth adds to first-quarter GDP, it will very likely be unwanted inventory growth.

Recent History Of This Indicator:
Business inventories have been on the decline, not the result of strong demand but due to concerted destocking as sales have been soft. After falling 0.2 percent in November and 0.1 percent in October, the Econoday consensus is calling for a small rise in December of 0.1 percent. Slowing inventories are a negative for GDP but, given slowing demand, are a positive for future production and employment.