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Low inventory levels are a good sign for the US economy

Much of the economic data shows the economy is slowing and some data shows strength. This includes the ratio of inventory to retailer’s sales.

This ratio shows the store’s inventory in relation to sales. Theoretically, the lower the quota, the more efficiently the company can distribute capital, since no money is tied to unsold products.

In the extreme case, the theoretically perfect value for the ratio of inventory to sales is 1.0. This is because the inventory is exactly the same as the sales. The reality is that retailers are missing out on sales because they can’t always find what their customers are looking for.

For most of the last decade, this ratio has been close to 1.5. That ratio fell to a low of 1.07 in April and then rebounded to 1.08 in the latest report.

Stock levels are lower than usual

Low inventory isn’t a bad thing

At the current level, consumers may not find everything they want. There are reports that:

Grocery chains are still struggling with delivery challenges. Some executives said it was as bad as what they saw when they dumped the remaining holes for some staples in the spring of 2020.

Industry managers say new problems arise every week due to labor and raw material shortages. Foods like frozen waffles and beverages are still in short supply as some food companies anticipate continued turmoil through 2022. The shortage of a wide range of products complicates the logistical challenges for many retailers.

News articles and experience show that store is scarce, but analysts explain why the data is deviating from this trend, and if so, blame auto dealerships. Car dealer inventories are low, which explains much of the decline. That may be the case, investor, the cause of the low rate is not important.

What matters is the fact that retailers are spending on restructuring their inventory. This is to help manufacturers and shippers to take and process orders from stores.

For now, the low inventory-to-sales ratio could have a positive impact on the economy.

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Michael Carr, I’m a Chartered Market Technician Banyan HillEditor and Editor One Trade, Peak Speed ​​TraderWhenPrecision Profit. He teaches technical and quantitative technical analysis at the New York Institute of Finance. Carr is also a past editor of the CMTA Association’s newsletter. Tech-wise .. Follow him on Twitter @ MichaelCarrGuru.

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