Inventories to Sales Ratio Rising

It is largely raw materials and energy.

that’s a fair question, Kim…my first thought, which would apply to unadjusted business inventories as well, is that inventories are not marked to market for national product purposes; they’re recorded at their value at the time they enter inventory…that’s what i got out of my reading of the NIPA chapter on them, anyhow….that would mean, for instance, if you warehoused copper when the price was $2.80 earlier this year, those inventories would still be valued at $2.80 today even though you’re selling copper at $2.20 now…since prices for goods are generally lower this year, there’d be some percentage of slower moving products that may be inventoried at a higher value than they’re now selling for…

the pdf for the 3rd quarter GDP report does not give me the value of inventories, just the quarterly change, so i can’t check the trend of that ratio right offhand, unless someone knows where to get the real value (in chained 2009 dollars) of inventories used in GDP…do you have a source for the inventory to sales ratio for GDP, and how it’s changed YTD, Kim? better yet, have you seen a chart of that somewhere? i can’t comment on something i can’t see…

my broader point was not that the real ratio wasn’t rising, but that you can’t tell anything from looking at a nominal chart of the broad spectrum of various products, when prices for most goods have been going down…producer prices, even core producer prices, which we’d use for adjusting inventories, are down YOY…intermediate goods less food and energy have been down 14 out of the last 16 months, with only May and June seeing 0.1% increases…the CPI index for goods less food and energy is down 0.6% YoY…the PCE price index for goods was down 0.4% in November, and hence real goods PCE was up 1.0%, even though everyone said retail sales were weak..

looking at Marko’s chart, we see the I/S ratio for retail inventories is still lower than it was in 2007, while the while factory inventories to shipments ratio has been elevated since 2010, and just moved up a bit in 2014, probably due to lower refinery & chemical sales, meanwhile, the IS ratio for wholesale goods has had the most dramatic increase, so i’d look at wholesale goods for evidence of excessive inventory accumulation there..the first thing i see is that total wholesale sales are down $14.7 billion to $448 billion YoY; scan down from there and you see that sales of petroleum and petroleum products merchant wholesalers are down nearly $20 billion to $41 billion…on the inventory side, YoY wholesale inventories are up more than $20 billion to $586 billion; while inventories of petroleum products wholesalers are down $3.7 billion to $17.9 billion…petroleum et al sales went from nearly 15% of wholesale sales to less than 10% over a year; the drop in petroleum products inventories is less than 1% of the aggregate…and there has been inventory accumulation of oil & oil products; i track that every week, and crude inventories have been running 25% to 29% above last year’s record highs, while all products inventories except kerosene are above average for this time of year…there is also the contango trade, wherein traders buy oil or product and simultaneously sell a futures contract at a high enough price to pay for storage and still make a profit which is driving inventory accumulation there..and it shouldn’t be a surprise that heat oil inventories are well above normal…

looking at the rest of the wholesale report, the only I/S ratios for durable goods that are up more than 10% are automotive products wholesalers and metals and minerals wholesalers…the later may have some of the same issues that oil does, while i couldn’t guess what the problem might be with automotive products wholesalers, which even includes used parts…we’ve had new car sales at an 18 million annual rate for 3 months in a row for the first time in history, with 3 out of 4 passenger vehicles sold by Detroit built on a truck frame, so i can’t see that that sector is hurting…

among non durable goods wholesalers, the only sector other than oil products with an I/S ratio up more than 10% this year is chemicals, although farm products wholesalers had a higher ratio in September…in both of those cases, we’re seeing lower YoY sales, probably due to lower prices, and higher inventories for reasons which are beyond me…

i just realized why i could not find inventories in any of the GDP data i have access to…<binventories are not even included in GDP!
the only part of inventories that makes it into the GDP calculation is the change from quarter to quarter…
you can see that by adding up the totals of the GDP components here in Table 3 from the report:
http://www.bea.gov/newsreleases/national/gdp/2015/pdf/gdp3q15_3rd.pdfnote, no total inventory figurei is given.

and that’s quite logical, by the way…because inventories that haven’t changed dont represent an increase or decrease in our output of goods & services…