Business Inventories

April Business Inventories fell 1.1%, about in line with expectations and March was revised down by .2% to a decline of 1.3%. It’s the 6th straight month of 1% or more drops and reflects the dramatic inventory correction that our economy has experienced. At the same time, it provides the backdrop for the bullish camp’s case that the economy will get a lift from the subsequent inventory replenishment cycle. Because sales fell .3%, the inventory to sales ratio fell to 1.43 and is below the recent high of 1.46 in Jan which was the highest since 1996 but still remains well above the record low of 1.24 in Jan ’06. The drop in inventories was again led by the auto sector which is now down 17.4% y/o/y as plant shutdowns continue and it’s this sector in particular that may lead the eventual inventory restocking.

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