Inventories Rise as Retail Sales Sag

By: Justin Lahart and Jean Guerrero

Commentary:

Economic recoveries are rarely smooth, they always come in halting stages and this one has been no exception. The “checkmark” recovery has been living up to its name as well. The sharp decline has been followed by a slow and inexorable (thus far) recovery but with the emphasis on the slow part. The impact of this slogging recovery is that sectors of the economy do their part and then sit back to wait until the others start to gain. The business community became the hero of the recovery in the latter part of last year as the decision was made to rebuild inventories in anticipation of a recovery sometime this year. Now that this inventory build has taken place the next step is for the consumer to get in gear and start to snap up some of that inventory – directly and indirectly. Nobody yet has a fell for when that will happen but the sense is that a few other developments will have to take place before the consumer gets back to some semblance of their former selves.

The latest inventory numbers are telling that story. Business has replaced the material that sold in the course of the last few years of boom and all they can do now is wait. The sense at the moment is that it would take between three and six months to clear this supply at the current rate of growth (around 1.5% to 2%) but only about two months if the growth rate jumped to 3% or above.

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