Sunday, 18 of February of 2018

Economics. Explained.  

Business Inventories / Sales Ratio

January 4, 2018

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 October business sales rose 0.3% but because the hurricanes caused a dropoff in production,  inventories declined 0.1% to satisfy the demand.  As a result, the inventory to sales ratio fell .01 to 1.35.  In recent months sales have outpaced inventories and the inventory/sales ratio has fallen.  A faster pace of sales will eventually require business people to step up the pace of production to build inventories  to ensure that they have adequate supplies on hand.

Stephen Slifer

NumberNomics

Charleston, SC


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