Wednesday, January 14, 2009

Increasing Inventory Glut

The headline on Bloomberg News said "business inventories decline for third month" [In November]. That is true if you look at the nominal value, but considering the price deflation during that period, the real inventory level probably rose. And compared to business sales, which fell 5.1% in nominal term versus only 0.7% for inventories, inventories rose sharply, and are now at their highest level since 2001. Considering how there has been a structural decline in inventories over time, excess inventories are arguably much higher than in 2001. And as you can see in the chart below, the increase in inventories is far higher than it was in 2001.

This is yet another indicator that the slump is far from over, as companies will be forced to deal with the excess inventories by reducing production.


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