NRF Economist Addresses Increasing Inventory to Sales Ratio

NRF recently reported on the retail inventory balancing act and if there is anything to worry about as inventory to sales ratios have recently been increasing. They reported that:

Through an economic lens, large changes in inventories signal changes in spending and thus are a potential indicator of future business activity. For example, a higher-than-normal level of inventories relative to sales can signal that the economy is slowing down. I don’t believe we can currently infer that the economy is slowing down. Instead, the flood of merchandise that came into the country after the West Coast port slowdown was resolved earlier this year — coupled with slow sales because of bad winter weather — caused inventories to increase not just for retailers but also for other businesses. Meanwhile, it remains unclear what impact this summer’s slowdown in job growth had on sales and inventories and whether the recent increase in consumer spending on services, vacations and restaurant meals is temporary. Nonetheless, it is unlikely that the economy is pulling back as a result of an inventory buildup, especially since the Bureau of Economic Analysis revised third-quarter growth upward to 2.1 percent from its initial estimate of 1.5 percent, indicating that the consumer sector has been one of the primary areas of overall economic growth.

2014, 2015 Monthly Inventory to Retail Sales Ratios and year-over-year Change in Inventories

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