Economist: Inventory Numbers Show Caution

The expectation of the retail community as the holiday season advanced was that they would go into this year as they have in the past couple of years—inventory light. That is exactly what has transpired, and there is no sign that strong sales from the last few weeks are going to provoke any last-minute additions to their stock.

There has been no change in retail, but that is not the story in wholesale or in manufacturing. The inventory levels in these sectors have gained dramatically. Manufacturers saw a 0.9% jump in inventory -- in wholesale, the hike was 1.6%. The differing strategies of the sectors are interesting.
 
Overall, there has been a consistent hike in the inventory level for manufacturers in reaction to the big supply chain disruptions that took place this year. It has not been just one or two incidents but a series of them, and they still affect major sectors around the world. The crisis in Japan damaged the ability of the auto sector to keep pace with production schedules all summer and, now, the tech world is suffering from the impact of flooding in Thailand. The factories that produce everything from hard drives to peripherals remain under water post-flooding. These disruptions are creating a new need to have inventory on hand.

Beyond that, there is concern that prices will start to rise in the coming year and many companies are seeking to beef up inventory of raw materials to beat that expected price hike. Wholesalers have been doing some of that advance purchasing as well in order to avoid what they anticipate in the coming months. There is increasing activity that suggests that companies are expecting to see better times in 2012. If things don't work out in such a manner, there will be some long faces by the second quarter.

Source: Chris Kuehl, NACM economist

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