Wednesday, May 13, 2009

Update on Inventory Correction

The Q1 GDP report showed a strong inventory correction is under way, with the BEA reporting inventories declined -136.8 billion (SAAR) in Q1. The Manufacturing and Trade Inventories and Sales report from the Census Bureau today showed more evidence of declining inventories.

Inventory Correction Click on graph for larger image in new window.

The Census Bureau reported:
Manufacturers' and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,404.1 billion, down 1.0 percent (±0.1%) from February 2009 and down 4.8 percent (±0.3%) from March 2008.
The above graph shows the 3 month change (annualized) in manufacturers’ and trade inventories. The inventory correction was slow to start in this recession, but inventories are now declining sharply.

Inventory Correction However, even with the sharp decline in inventories, the inventory to sales ratio was flat in March at 1.44.

There has been a race between declining sales and declining inventory. And even if sales start to stabilize, inventory levels are still too high, and further inventory reductions are coming.

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