Saturday, May 9, 2009

Inventories Pile Up

Inventories are piling up, a sign that the economy is nowhere near a bottom. It is not that inventories are growing larger, but that they are not shrinking nearly as fast as sales are.

The U.S. Census Bureau is reporting wholesale sales falling 2.4 percent in March, while wholesale inventories fell only 1.6 percent. Compared to the year before, sales are down 18.1 percent, but inventories down only 3.5 percent. This means wholesalers are holding merchandise longer before they sell it.

Ordinarily this would mean wholesalers’ operations have become more expensive, but as interest rates have also fallen since last year, the lower interest payments may make up for the longer period of time that merchandise stays at the wholesale level. Still, wholesalers will be looking to streamline their operations by cutting back their inventories to the levels they actually need, and this will mean less work for factories and importers in the next couple of months.