No Inventory Correction in September

Posted on Tuesday, November 17, 2009

Forbes reported earlier this morning (traveling again all week so expects delays):

Total business inventories continued to fall in September by 0.4%, less than the 0.7% decline economists were expecting, the Commerce Department reported today. September now marks the thirteenth consecutive month of inventory declines, the longest streak since the 15 months ending April 2002. Total business inventories are 13.4% lower compared to August 2008.

Total business sales fell 0.3% in the month, breaking the three-month streak of growth. The decline can be attributed to a 2.6% decrease in retail sales, reflecting a 14.3% decline in auto sales. All other major types of retail stores experienced sales gains of less than 1% except for building material stores whose sales decreased by 0.6%. Manufacturing sales and wholesale sale rose 0.85 and 0.6% respectively.

Marketwatch explains what an inventory correction is and how it works its way through to final output figures:

Once businesses reduce their inventories to desired levels, any increase in sales will have to come from new production, which would boost both U.S. jobs growth and imports.

The inventories report typically receives little attention from investors, but the pace of inventory reduction will be at the heart of any economic recovery this year. Most economists believe inventories will continue to be cut for several quarters before general restocking is needed.

But unfortunately, the trend of a continued declining inventory to sales ratio was not in the cards for September.



While this is only one data point, without sales growing faster than inventories, we won't get the mother of all inventory corrections many (I included) expect.

Source: Census

Jake 17 Nov, 2009

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Source: http://econompicdata.blogspot.com/2009/11/no-inventory-correction-in-september.html
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