It’s a bit dated because the most recent number is over six weeks old, but the first rise in inventories in over one year suggests that the destocking that occurred in response to the near collapse in demand late last year may finally be running its course.
The government reported this morning that wholesale inventories increased 0.3% in October, even as sales jumped an impressive 1.2%. That brings the closely-watched inventories-to-sales ratio, or how many months it would take to liquidate stockpiles on hand, to 1.16.
At 1.16, the ratio is slightly below where it stood through much of the expansion that occurred during the decade, and further gains in sales are likely to encourage firms to re-open idle plants and ramp up production.
Based on recent increases in industrial production and positive readings on surveys that measure manufacturing – the ISM and Philly come to mind – that is exactly what has been happening.
Still, let’s temper some of our/my enthusiasm given that gains have been modest, and the hole we must dig ourselves out of is wide and deep.
An uptick in hiring?
Definitely good news on the employment front; however, companies have become very adept at managing the supply chain and keeping inventories lean, and it seems very unlikely that we will see a sharp upturn in the ratio that measures sales and inventories.
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