August Business Inventories still reflect the drag from inventories as they fell 1.5% vs expectations of a drop of 1%. Because sales rose by 1%, the inventory to sales ratio fell to 1.33 from 1.36, the lowest since August ’08 but it sets the backdrop for an improvement in manufacturing into year end as the inventory drawdown’s recede, especially in the auto sector. Most of the drop in inventories is still related to the auto sector as it fell 7.9% at the retail level. Inventories at retailers ex auto’s fell just .3% which is the smallest drop since March. The bigger than expected drawdown in inventories may lead to a downward revision to Q3 GDP estimates of .1-.2 of a %.
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