No surprise here. Wholesale inventories fell 0.8% in May on top of the 1.3% decline in April as businesses continue to reduce excess goods on hand that built up from the near collapse in sales late last year and early this year.
Sales improved by 0.2%, pulling down the inventories-to-sales ratio - how many months it would take businesses to liquidate inventories, from 1.31 to 1.29. The ratio stood at a lean 1.12 a year ago.
But all of the increase in sales came from higher petroleum sales, which are likely due to increased prices. Pull out oil and sales were down slightly.
What does all this mean? We may need to see some more de-stocking of goods before companies start ramping up production again, but the liquidation cycle, as painful as it may be, is needed in order to get inventories back into balance.
Thursday, July 9, 2009
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