Wednesday, 22 of November of 2017

Economics. Explained.  

Business Inventories / Sales Ratio

March 15, 2017

Inventory to Sales Ratio

Firms are always trying to keep their inventories in line with sales.  When the economy falls into recession, typically businesses do not cut back production as quickly as sales decline, so the inventory/sales ratio rises sharply  — which is exactly what happened during the 2008-2009 recession.  Then, as the economy recovers and sales once again begin to rise, corporate leaders are able to  get inventory levels into closer alignment with sales.

In January business inventories rose 0.3% while sales rose 0.2%.  As a result, the inventory to sales ratio was unchanged at 1.35.  In recent months sales have outpaced inventories and the inventory/sales ratio has declined.  That may continue for a while longer but ultimately a faster pace of sales will eventually require business people to build inventories at a faster pace than sales to ensure that they have adequate supplies on hand to satisfy demand.

Stephen Slifer


Charleston, SC

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