Inventory Growth Pace Comparatively Thin

The economic pace has been building but not inventories which are growing comparatively thin. Business inventories fell 0.1 percent in October against what is a very strong 0.6 percent rise in sales. The mismatch pulls the inventories-to-sales ratio down to 1.35 from 1.36 in September and 1.38 in August.

Retailers, enjoying strong sales, weren't able to add to inventories which were unchanged in the month. But the imbalance is isolated to vehicle dealerships where inventories fell 0.7 percent and excluding which retail inventories actually rose 0.4 percent.

Manufacturers added 0.2 percent to their inventories but wholesalers, the middle-man in the economy, show a sharp draw, down 0.5 percent in October which underscores the strong pace of overall demand.

Low inventories will help keep prices firm which, though a negative for holiday shoppers looking for bargains, is a plus for Federal Reserve policy makers who are hoping that inflation will begin to show some lift. But for employment and production, low inventories and the need for restocking are clear pluses. One last note, however, is that inventory draws are a negative in the GDP calculation and today's report will shave a little from what otherwise look to be rising estimates for fourth-quarter growth.

Recent History Of This Indicator:
Business inventories have been climbing solidly in line with underlining sales but are expected to ease back in October. Lower inventories during a time of rising economic demand point to the need for restocking and are a plus for employment and production. Forecasters see a 0.1 percent draw for October inventories.