Business inventory figure were released today for the month of January. The figure showed a rise in inventories of 0.7%%. Analysts had forecast an increase of 0.6% in stocks. The figured had increased by 0.3% and 0.4% for November and December respectively. A general increase in the total business inventories is a sign that the economy is improving, inventories are required to be increased as demand and consumption increase. It isn’t however a good forecast of these numbers and merely represents another confirmation figure. The report is for the month of January and so is too far out of date by its release to bring much change onto the market.
The only new piece of information that is available from this report is the inventories of retailers. The other segments, manufacturer inventories and wholesalers inventories have been released already in previous reports. With these components known the only surprise that can be in this report is a wild swing in the retail sector which is unlikely to occur. The report is widely predictable simply because most of the data is already known. The predictability of these numbers means they are used less as economic indicators but rather as economic data. They do not, except under specific conditions, help to forecast the direction the economy is going. The figures are best used by economists and as a supporting piece of data for economic recovery.
The Business Inventories report is not usually paid attention to by the markets and it does not regularly have a noticeable effect. It is of much more concern to economists who use the figures in the inventory report to calculate and forecast GDP numbers. The only other important figure is the inventory to sales ratio. This is used to calculate how long current inventories would last at the same rate of consumption. The ratio indicates whether businesses would be better off increasing their inventories in case of a disruption in supply. A change in this ratio may have an effect on the industrial production outlook. This number has been generally on the decline in recent years as businesses have responded to increased efficiency and new technologies in inventory management. These changes have saved businesses on storage space costs but have created a supply chain which needs exactness and technical know how to be successful.
