Business Inventories Are Flat in January

Business inventories remained unchanged in January, the U.S. Commerce Department announced Friday.

A Bloomberg News economists' survey had expected inventories would rise 0.2% in January after dipping 0.2% in December. Business inventories rose 0.5% in November and 0.3% in October, but prior to October, they fell for 13 straight months.

Business sales, however, continued to rise, edging up 0.6% in January, aided by increases in manufacturing and merchant sales. This followed a 1% rise in December. Sales are now up 6.8% compared to January 2009. While investors should keep in mind that current gains stem from a low base as a result of the recession, the year-over-year increase is still a substantial improvement from the double-digit declines recorded during the depths of the recession.

Inventory-to-Sales Ratio FallsAgain

In addition, with sales rising faster than inventories, the inventory-to-sales ratio fell again, to 1.25 in January from 1.26 in December and 1.27 in November. The ratio, an indicator of demand, was at 1.43 in April 2009 and at 1.46 a year ago in January 2009.

The long reduction in inventories appears to be over, with an apparent bottom registered last fall. That said, businesses will need evidence of continued demand to feel confident about holding more products on their shelves. If the economy slows, sales will dip, and businesses will again cut back inventories.