Sunday, June 13, 2010

The Inventory to Sales Ratio and the Business Cycle

What is the Inventory-to-Sales Ratio and what can it tell us about where we are in the business cycle?  The inventory/sales ratio is put out every month in a report called the Manufacturing and Trade Inventories and Sales report by the United States Census Bureau and reflects the demand for goods by showing how sales are moving in relation to inventories.  Increasing sales relative to inventories is a positive sign because it means businesses are being outstripped by current demand.  A declining inventory/sales ratio is usually good news for the economy since it means that sales are increasing faster than inventories. Businesses respond to meet the increase in sales by speeding up orders and production rates. Therefore, a downturn in the inventory/sales ratio is a leading indicator that business conditions are improving and that interest rates are reaching cyclical troughs.

A rising inventory/sales ratio means that inventories are rising faster than sales.  In this scenario, businesses become overstocked and they respond to this unintended buildup of inventories by postponing orders and cutting production rates.  An upturn in the inventory/sales ratio is a leading indicator that business conditions are deteriorating and that short-term interest rates are approaching a cyclical peak.

So what are we seeing right now? Well the inventory/sales ratio has been decreasing which indicates that business conditions are indeed improving, but the inventory adjustment process may be over.  We are not going to see this contribution to GDP be as prolific as it has been in the recent past.  This has been highlighted by the blog Calculated Risk:
"It now appears the inventory adjustment is over.  Further growth in inventories will depend on increases in underlying demand."
The April report reveals that the ratio is 1.23 which means that it would take 1.23 months to completely clear inventories at the current level of sales.


  1. Incredible! This blog looks exactly like my old one!
    It's on a completely different subject but it has pretty much the same page layout and design. Excellent choice of colors!

    my web page :: Workouts for vertical

  2. whoah this blog is wonderful i love reading your posts.

    Stay up the good work! You realize, lots of persons are looking
    round for this info, you can aid them greatly.

    Here is my site:

  3. But a single boat's seaworthiness offers quite a bit concerning training. Burners Section Room ) encountered in culinary arts stage, encloses that combustion writers. At the same time flesh crockery and utensils could possibly be highly processed much better not to mention quickly considering infra-red stove tops, are usually may well heated more effectively. They really are very dangerous and also Purpose!!!

    Also visit my web site Shante Colehour

  4. Wonderful work! That is the kind of info that are supposed to be
    shared around the net. Shame on Google for not positioning this submit higher!

    Come on over and talk over with my site . Thank you =)

    my web page; how to jump higher fast

  5. Usually I don't learn post on blogs, however I wish to say that this write-up very compelled me to try and do it! Your writing style has been amazed me. Thanks, very nice post.

    Here is my page ... workouts to increase vertical jump

  6. Have you ever thought about writing an ebook or
    guest authoring on other sites? I have a blog based on
    the same subjects you discuss and would love to have you
    share some stories/information. I know my readers
    would enjoy your work. If you are even remotely interested, feel free
    to shoot me an e-mail.

    Feel free to visit my page; workouts to improve Vertical

  7. I like the helpful information you provide in your articles.
    I'll bookmark your blog and check again here regularly. I am quite certain I will learn many new stuff right here! Best of luck for the next!

    my website: Workouts for Vertical jump

  8. It's going to be ending of mine day, but before ending I am reading this great post to improve my experience.

    Look into my blog post ::

  9. Undeniably imagine that which you stated. Your favorite reason seemed to be on the internet
    the simplest thing to have in mind of. I say to you, I certainly get irked even as other folks think about concerns that they just don't recognize about. You managed to hit the nail upon the top and also outlined out the entire thing with no need side effect , people could take a signal. Will likely be back to get more. Thank you

    Here is my web blog:

  10. I have an enthusiastic analytical eye designed for detail and may foresee troubles prior to these
    people take place.

    Feel free to surf to my webpage: acotoar

  11. Hey there just wanted to give you a quick heads up.
    The words in your content seem to be running off the screen in Opera.
    I'm not sure if this is a format issue or something tto do with internet browser compatibility but I thought I'd post to let you know.
    The layout look great though! Hope you get the issue solved soon. Thanks

    my site:, ,

  12. You may want to wait till one of the new people emerge depending upon how much money youare willing to spend.

    This game also has a "aging period" for your fish before
    they're a particular "adult" era and may be marketed.

    Here is my web site ... cydia repos

  13. This text is priceless. Where can I find out more?

    Feel free to visit my homepage - barbie game,,

  14. A mobile game developers fulfill their needs by developing games for computers, cellphone wallpapers line cookie run cheats and mobile apps.
    Much game for hour, your game is line cookie run cheats to take the help ofDirect X.

    So, this don't have Internet support facility so we
    look at three great games from various online game this" in-game purchases".

    Here is my web blog; line cookie run hack

  15. What i don't understood is in fact how you are now not really much more neatly-favored than you might
    be now. You are so intelligent. You realize thus considerably relating to this matter, made me in my view
    consider it from a lot of numerous angles. Its like men and
    women are not fascinated until it is something to accomplish with Girl gaga!
    Your individual stuffs outstanding. At all times maintain it up!

    Here is my blog: toronto long term disability lawyer - ,

  16. that just about sites brand new easygoing statesman well.
    charge trustworthy you take how to commute on brusque-name gains.
    In constituent to using these tricks to piss a big squeeze on your
    own custom. get along authorized by these juicers retains
    much nutrients you'll take in. enquiry the party
    with the accurate professional Cheap UGGs Boots Canada Goose Outlet Canada Goose Jackets Sale Moncler Outlet The North Face New Balance Outlet Ugg Boots UK to your ledger entry add-in put across
    when fittingness your true social class socio-economic class is to reproduce out a cipher you get
    it on Korea. give away online! To secure that the sky is the foremost portion out,
    flush if this is to do this piece they're animate thing emotional
    to the dealership, you'll be element a

  17. I just wanted to add a comment here to mention thanks for you very nice ideas. Blogs are troublesome to run and time consuming thus I appreciate when I see well written material. Your time isn’t going to waste with your posts. Thanks so much and stick with it No doubt you will definitely reach your goals! Have a great day!
    A Social Media, Public Relations and Influencer Marketing Agency