Inventory-Sales Ratio Signals Slow Economy

Business inventories rose 0.7% in July, erasing the previous month’s decline, while sales fell 0.5%, the government reported today.

The report was more evidence of a slowing economy.

The Commerce Department said inventories held on shelves and back lots in July totaled a seasonally adjusted $801.9 billion, up from $796.5 billion in June. The June backlog had declined a revised 0.5% from the previous month, rather than the 0.4% originally reported.

Sales, meanwhile, dropped to a seasonally adjusted $539.5 billion, down from $542.4 billion a month earlier. The June sales also were revised to a weaker 0.6% gain, rather than the 1% advance first reported.

The combination of falling sales and rising inventories produced a 1.49 ratio of inventories to sales, up from 1.47 in June and the same as May.

The ratio means it would take 1.49 months to exhaust the backlog of goods at the July sales pace.

But a larger increase could be worrisome since an excessive rise in inventories in relation to sales could cause production cutbacks and job layoffs as businesses attempt to sell off the backlog.

All major business categories experienced gains in inventories. Manufacturing backlogs were up 0.7% to $373.3 billion. Wholesalers posted a 0.5% gain to $192.2 billion. Retailers registered a 0.8% advance to $236.5 billion.

Manufacturing sales, meanwhile, declined 0.8% to $237.5 billion, while wholesalers posted a 1% drop to $152.0 billion.

Only retailers registered an increase, up 0.4% to $150.0 billion. But that gain is expected to be short-lived.