Business Inventory Growth Slows as Sales Decline

U.S. business inventories rose +.1% MoM (consensus +.2%) in August following a +.5% gain in July. Sales fell -.4% MoM. Both sales and inventories are up +3% YoY. The inventory to sales ratio was 1.27 in August, unchanged from the level a year earlier, but up from 1.26 months of supply in July.

Reduced sales raised concerns about weakening demand causing restrained stockpiling of inventories. The +.1% gain in inventories was the smallest since last March, when companies were last working out of excess inventory positions. Retail stockpiles grew +.5% MoM in August, a slowdown from the 1% growth pace the previous month. Most of the increase was due to larger auto (+1.5% MoM) and grocery store inventories. Excluding autos, inventories were unchanged last month.

Retail inventories account for about 33% of all business inventories, with factory inventories accounting for around 35%, and wholesalers accounting for the balance. Factory inventories fell -.1% MoM, the largest drop in a year and a half. Manufacturers were the only category to see the inventory to sales ratio rise last month.

Credit tightening and the housing slump are keeping producers cautious on production growth. Inventories added about +.22% to second quarter GDP growth.