Washington, DC, October 13, 2006--Business inventories increased 0.6% in August, slightly slower than the 0.8% increase in sales, the Commerce Department reported Friday.
The inventory-to-sales ratio remained at a very low 1.26. The typical business had about 38 days of sales on hand in the back room, an extremely lean inventory.
In the retail auto sector, inventories were still growing in August even as the industry was trying to move cars and trucks with special deals.
Economists were expecting inventories to rise 0.5% in August.
In July, business sales increased a downwardly revised 0.5% while inventories rose an upwardly revised 0.7%.
In the past year, business sales are up 8.1%, while inventories are up 7.7%.
The figures are not adjusted for price changes.
Inventories thus remain very tight and could create potential bottlenecks for scarce goods, thus fueling inflation.
In the past decade, businesses have adopted new inventory techniques that have reduced the amount of unsold goods on hand, cutting their costs and making them more flexible to meet changing demand.
If demand slows slightly as expected, businesses would be well-positioned to match supply and demand without slashing production and employment. However, if growth reaccelerates, some customers could be forced to pay more for scarce goods while waiting for production or imports to ramp up.
The monthly inventory report rarely moves financial markets, largely because the data are so old. Its chief interest is to economists who need the data to fill in the blanks on their quarterly growth forecasts. Inventory growth added about 0.6 percentage points to growth in the second quarter.
Much of the data in the report had been released previously. The one new bit of information was the 0.5% rise in retail inventories in August.
In the retail sector, sales were flat in August. The retail inventory-to-sales ratio rose to 1.49 from 1.48.
Retail auto inventories rose 0.5% in August while sales fell 0.4%. Automakers are trying to work down their inventories and have announced production cutbacks. In the retail auto sector, the inventory-to-sales ratio rose to 2.18 from 2.16.
Motor vehicle inventories are up 14.1% in the past year. Excluding autos, retail inventories increased 0.5% in August while sales rose 0.1%.
