Ahead of the Bell: Business Inventories

AP News
Posted: Nov 16, 2009 6:12 AM

U.S. businesses likely slashed inventories for a 14th consecutive month in September, although sales have been rising.

Amid other signs of life in the economy, businesses soon may begin restocking depleted store shelves after more than a year of inventory cuts. If that occurs, factory production will begin to rise and help bolster a broad recovery from the worst recession since the 1930s.

Inventories are expected to fall 0.6 percent in September, according to economists surveyed by Thomson Reuters. Stockpiles fell a more-than-expected 1.5 percent in August, and dropped 1.1 percent in July, slightly larger than the 1 percent initially estimated.

But sales by manufacturers, wholesalers and retailers rose 1 percent in August, reflecting a big boost from the government's Cash for Clunkers program in August. It was the third straight increase in sales.

The Commerce Department is scheduled to release the September report Monday at 10 a.m. EST.

The ratio of sales to inventories declined to 1.33 in August, from 1.36 in July. That meant it would take 1.33 months to exhaust inventories at the August sales pace, slightly higher than August 2008 inventory to sales ratio of 1.30.

The economy grew at a 3.5 percent pace in the third quarter, breaking a record string of four straight drops. Businesses did reduce their stockpiles of goods in the third quarter, but less than the record pace in the second quarter. Even the smallest increase in demand should prompt factories to boost production and help sustain the recovery in the coming months, economists said.

Factories hold about one-third of all inventories, wholesalers hold about 25 percent and retailers hold the rest.

In August, manufacturers cut inventories 0.8 percent, retailers reduced them 2.3 percent and wholesalers by 1.3 percent. Sales in August rose for both retailers and wholesalers, but dipped 0.3 percent for manufacturers.

Inventories have fallen for 13 straight months, the longest stretch since they dropped for 15 consecutive months in 2001 to 2002, a period that covered the last recession.