Washington, DC, February 14, 2006--Business inventories tightened in December as the 1.2% increase in sales outpaced inventory gains of 0.7%, the Commerce Department said Tuesday.
It was the biggest increase in sales since December 2004. It was the biggest increase in inventories since January 2005.
The inventory-to-sales ratio fell back in December to the record low of 1.25 reached in October. The typical business had 38 days of sales on hand, down from 44 days in 2001.
Despite the tighter stockpiles, businesses still loaded up on inventories in the fourth quarter. Inventory rebuilding more than accounted for all the 1.1% annualized growth in the quarter.
In November, business inventories increased 0.6%, revised up from the previous 0.5% estimate. Read the full report.
For all of 2005, business sales increased 7% while inventories rose 4.3%. The figures are not adjusted for price changes.
Economists expected inventories to rise 0.5% in December.
The report generally has little impact in financial markets and is of interest chiefly to economists trying to fine-tune their estimates for gross domestic product.
Better inventory controls have allowed companies to operate with leaner and leaner stockpiles. If inventories get too tight, however, companies risk losing customers to competitors who can deliver the goods.
Tight inventories can also fuel inflationary pressures, as customers bid up prices on increasingly scarce goods.
Economists expect inventory rebuilding to contribute to growth in 2006, as businesses try to get ahead of demand.
Much of the data in the inventory report had been released earlier. The one new bit of new news was the 0.7% increase in retail inventories. Retail sales increased 0.4% during December.
Retail auto inventories increased 0.9% in December, while other retail inventories increased 0.6%. The retail inventory-to-sales ratio rose to 1.47 from 1.46.
