Inventories getting back in line with sales

Here’s something that came in under the radar last week that I feel needs to be pointed out.

Wholesale inventories remain in a sharp downward trend, falling 1.3% in August. A solid 1.0% rise in sales was mostly responsible for the decline, indicating that the drop in goods sitting in warehouses is occurring mostly because of increased demand and not falling production.

And this has brought about a sharp decline in the inventories-to-sales ratio, or how many months it would take businesses to liquidate all inventories, which now stands at 1.20.

This as good news as it means that companies that manufacture goods will soon need to boost production or risk missing profitable opportunities, in my view.

Although positive in that the steep decline should soon translate into manufacturing gains, it does highlight how quickly manufacturers reacted to the steep drop in demand late last year by halting production and cutting back on workers.