Saturday, February 14, 2009

Sales Declining Faster Than Inventory

Although businesses are trimming inventory levels, actual sales are declining at a faster pace. The result is a spike higher in the inventory to sales ratio.

(click to enlarge)

business inventory February 2009
One reason for the decline in sales is due to consumers reducing their debt exposure. The consumers' desire to reduce debt is attributable to concern about the future direction of the economy and, for some, the inability to gain access to credit. In the short run, the reduced spending/higher savings is a drag on economic activity, but reducing debt levels is beneficial in the longer term.

(click to enlarge)

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