Business Inventories

Question 1

What are the three sets of data at the heart of the report?

Answer 1

total business sales
total inventories
sales-to-inventory ratio

Question 2

What is new about this report

Answer 2

A look at total inventories and the sales to inventory ratio

Question 3

Whats the most telling part of the inventory numbers? Why

Answer 3

Retail inventories

Because it is at the retail level where the economy often first runs into trouble.

Question 4

How does a build-up in inventories lead to an economic slow-down, starting with retailers.

Answer 4

When retail inventories get too high, they cut back on orders from wholesalers, who in turn manage their own inventories and make adjustments as necessary. If their own inventories are too high, then they will cut back orders to factories. Those factories will then be faced with a decision to either slow production or reduce it outright, potentially leading to layoffs. Household income falls, and retailers have a tougher time selling their already elevated inventories.