Tuesday, February 14, 2012

Business Inventories & Sales: Good News

The Lehmann Letter (SM)

This letter has long expressed the view that the economy won't thrive until housing rebounds.

Nonetheless there have been many signs of a return to normalcy.

Take today's Census Bureau report on inventories:


December inventories grew at a seasonally-adjusted annual rate of $70 billion after increasing by $60 billion in November.

Place these numbers on the chart and compare them to the typical rate of expansion: They are right on the average.

Inventory Change
(Click on chart to enlarge)

(Recessions shaded)

What does this mean?

These data show that manufacturers, wholesalers and retailers are stocking their shelves at a rate consistent with their expectation of ongoing prosperity. Note the heavy restocking immediately after recession. That's over now. Depleted inventories have been replenished. Today business is adding inventories in anticipation of future sales.

The Census Bureau report also revealed that inventory growth kept pace with sales growth. There was no sign of exuberant shelf-stocking in anticipation of boom conditions. That's good: Booms always lead to busts.

Bottom line: Business inventory and sales data show an economy that's growing at a good clip.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

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