Monday, April 16, 2012

Inventories: No News Is Good News

The Lehmann Letter (SM)

Here is a, "No news is good news," story for today's letter.

This morning the Census Bureau reported that business inventories and sales kept on doing what they have been doing for months:

Inventories grew by $115.9 billion and sales grew by $105.7 billion so that the inventories/sales ratio remained steady at 1.28.

How's that for a snore!

But why is it good news? Because, as you can see from the charts, both inventories and the inventories/sales ratio have been proceeding at these levels for a while.

(Click on chart to enlarge)

(Recessions shaded)

Inventory/Sales Ratio
(Click on chart to enlarge)

(Recessions shaded)

The inventories/sales ratio spiked during the recession when businesses were caught by surprise and suffered involuntary inventory accumulation. Then, as they liquidated their stocks, inventories plunged. As soon as sales began to recover, however, businesses replenished their inventories. That kick-started the recovery.

Now inventory growth is tootling long at a little over $100 billion and the inventories/sales ratio has returned to its pre-recession 1.28. It looks dull, but it's wonderful. Business sales are strong and businesses are rebuilding their inventories. They clearly believe things are back to normal.

Let's end it right there.

(To be fully informed visit

© 2012 Michael B. Lehmann

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