Inventories Still Piling Up Amid Sales Slump Mike Larson | Wednesday, March 9, 2016 at 4:25 pm
If you’re a corporation, you don’t want to make something that’s just going to sit on a shelf somewhere gathering dust. Trouble is, the latest economic data shows that’s exactly what is happening.
We just learned this morning that wholesale inventories rose 0.3% in January, rather than decline by 0.2% as economists expected. Last month’s reading was revised to unchanged from a decline of 0.1%.
Meanwhile, wholesale sales tanked 1.3%. That was more than twice the 0.6% drop in December, and the sixth decline in the last seven months. A bad sign for the economy.
As a result of rising supply and falling sales, the inventory-to-sales ratio climbed to 1.35. That’s the highest since April 2009 when the U.S. economy was just coming out of the Great Recession. Not only that, but it’s also worse than the worst level we saw during the dot com bust.
One key sector that’s looking increasingly oversupplied? Autos. Dealers have been complaining about having too many cars on their lots, while manufacturers have had to resort to increasing incentives to move metal. But other industries are facing challenges of their own.
Manufacturing isn’t the only driver of economic growth in the U.S. We’re more of a service economy these days. But given the magnitude of the problems that this key ratio is pointing toward, I wouldn’t ignore factory weakness either. Auto inventories continue to expand.
The piling up of inventories will likely lead to production cuts and manufacturing layoffs — unless we see a miraculous, out-of-the-blue surge in sales. That, in turn, will weigh on GDP in 2016, and likely put pressure on stock prices, too.
So what do you think about the accumulation of inventories? Is this a troubling economic indicator? Are we going to see a negative print for GDP sometime in 2016 as a result? Or do you think relative strength in the service sector will carry the day? Hit up the comment section and let me know.
Poster Comment:
You can get a great deal on a car right now. Wish I had the cash or credit to do it.