Tim Quinlan, Economic Analyst

tim.quinlan@wachovia.com ● 704-374-4407

February 12, 2009

Business Inventories Fell 1.3 Percent in December

Business inventories declined for the fourth consecutive month in December. The inventory-to-sales ratio continued
to climb as sales continue to fall faster than business owners can cut production, providing further evidence of a
tough fourth quarter for businesses. We look for the change in inventories to be a drag on first quarter GDP.
Decline in Sales Outpacing Decline in Inventories Everybody Slammed on the Brakes at the Same Time
• Businesses are doing what they can to reduce inventories, but • The inventory-to-sales ratios across the supply chain are all
sales have been declining so fast they cannot reduce stockpiles rising fast. It appears that from factories to wholesalers to
fast enough. stores, businesses were all caught flat-footed by the speed and
• The inevitable result has been a startling rise in the inventory- intensity of the slowdown in economic activity last fall.
to-sales ratio. This is a clear sign that even sharper production • In a separate release, January retail sales were stronger than
cuts are likely on the horizon. expected, suggesting inventory declines may continue.

Total Business Inventories Inventory to Sales Ratios

Month-to-Month Percent Change Retailers, Wholesalers, Manufacturers
1.5% 1.5% 1.45 1.65

1.0% 1.0% 1.40

1.60
1.35
0.5% 0.5%
1.55
1.30
0.0% 0.0%
1.25 1.50
-0.5% -0.5%
1.20
1.45
-1.0% -1.0%
1.15

-1.5% -1.5% 1.40

1.10 Manufacturing: Dec @ 1.44 (Left Axis)
Wholesale: Dec @ 1.27 (Left Axis)
Total Inventories: Dec @ -1.3% Retail: Dec @ 1.61 (Right Axis)
-2.0% -2.0% 1.05 1.35
01 02 03 04 05 06 07 08 98 00 02 04 06 08

Business Inventories Retailers' Inventories vs. Sales

Total Inventory-to-Sales Ratio Year-over-Year Percent Change, 3-Month Moving Average
1.60 1.60 12% 12%
10% 10%
1.55 1.55
8% 8%
1.50 1.50 6% 6%
4% 4%
1.45 1.45
2% 2%
1.40 1.40 0% 0%
-2% -2%
1.35 1.35
-4% -4%
1.30 1.30 -6% -6%
-8% -8%
1.25 1.25
-10% Retail Sales: Jan @ -10.8% -10%
Total Inventory to Sales Ratio: Dec @ 1.44 Retail Inventories: Dec @ -1.5%
1.20 1.20 -12% -12%
92 94 96 98 00 02 04 06 08 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

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