Inventories fall, but sales fall faster

U.S. businesses are doing their best to reduce excess inventory, but declining sales continue to negate that progress.

Business inventories fell in 1.0 percent in March, but sales fell even faster, declining 1.6 percent, the U.S. Commerce Department announced Wednesday. Further, aided by statistical rounding, the inventory-to-sales ratio remained at 1.44. A year ago, the ratio was 1.28.

Economists surveyed by Bloomberg News had expected inventories to decline 0.8 percent in March. Inventories fell 1.3 percent in February and 1.1 percent in January. Inventories have fallen 3.5 percent since February 2008.

Stock market getting ahead of economy?

Peter Jankovskis, who helps manage $1.2 billion at OakBrook Investments in Illinois, said the the weak inventory data and retail sales data does not bode well for the U.S. stock market, at least short-term.

"It's a clear indication that the market had gotten ahead of itself in thinking we were coming out of this recession aggressively,"Jankovskis told Bloomberg News Wednesday. "We're not going to be retesting the low of March 9 by any stretch of the imagination, but some retracement of the gains since that time is certainly in order."

In general, economists prefer to see business inventories decline during a recession, as it has historically indicated that business are bringing inventories back in line with reduced demand, taking excess supply out of the system. That drawdown has historically set the stage for both production increases and at least some job additions, once the economic recovery starts.

Economic Analysis: Once again in March, companies did their best to reduce or "realign" inventories, but they received no help from sales, which fell faster. Further, given the probable decline in consumption as a percent of U.S. GDP, the nation is not likely to experience the robust sales period that typically accompanies an economic expansion. That suggests an economy where businesses only incrementally and reluctantly increase consumer-oriented production.

Read Full Story

Sign up for Breaking News by AOL to get the latest breaking news alerts and updates delivered straight to your inbox.

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.