Much today’s attention is on the unemployment rate, which jumped past 10% in October, the release this morning of wholesale inventories indicates that the rapid destocking cycle that began last year is slowly but not significantly abating.
The U.S. Census Bureau reported that wholesale inventories fell 0.9% in September, while sales grew 0.7%. Although sales continue to rise and have gained ground for six-straight months, manufacturers have been reluctant to quickly ramp up production, hampering gains in economic activity.
As viewed by the chart above, companies continue to work off goods on hand, rather than significantly boost production. Note that the inventories-to-sales ratio, or how many months companies need to completely liquidate inventories, fell from 1.20 to 1.18 and remains in a sharp, downward trend.
The economy is improving and demand overseas, especially from Asia, has accelerated. But the domestic recovery is still fragile, and consumer demand, which is starting to show signs of expanding, is being held back by high unemployment, damaged balance sheets, and sluggish growth in incomes.
Rapidly falling inventories should eventually add to economic activity as companies restart idle production lines in order to meet expected demand. But these same firms are in no hurry to significantly raise output.
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