It turns out that businesses are running on lean inventories, but these inventories are rising to accommodate higher sales as well. If you don’t believe it, what does a 1.0% rise in sales signal? It feels like the snapback recovery, and perhaps that bodes well for the argument that first-quarter gross domestic product (GDP) gain of only 0.1% was an aberration rather than the new normal.
The inventory-to-sales ratio in March was effectively unchanged at 1.30. Wholesalers showed a slight dip in their inventory-to-sales ratio, but there was a 1.1% rise in inventory levels against a gain of 1.4% in sales. Another boost is the destocking trends in retail, which coincides with other readings we have seen for retail in April versus March.
Rising inventories can be a double-edged sword. Rising inventories due to poor sales is bad for the economy and for GDP. If inventories are rising because businesses have to build up for stronger demand, that is good for the economy.
Tuesday’s report signals that businesses are managing their business inventories well, and that the argument for a resumption of growth is looking better.
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