Manufacturing and Trade Inventories and Sales
Business inventories are “waiting room” goods – products that have been manufactured, processed, or mined by have not yet been sold to the final user. As such, they are a key component of the GDP calculation. GDP is the total amount of final goods and services produced in an economy in a given period. That includes goods that haven’t been acquired by a final purchaser, otherwise known as inventory.
However, inventories’ role in the GDP calculation is not the sole reason economists monitor them carefully. Failure to balance inventories against demand can, and has, hurt businesses and destabilized the economy. Companies that overstock their shelves in anticipation of orders that do not materialize find themselves in a hole, forced to cut production and lay off workers. It has been hypothesized by prominent economists that the Great Crash of 1929 was provoked in part by the misalignment of inventory positions. On the other hand, businesses whose inventories are too lean miss potential profit during a boom.
The MTIS report compiles sales data previously reported in the Census Bureau’s Advance Monthly Sales for Retail Trade and Food Services report together with inventory and sales information from its Wholesale Trade Survey and its Manufacturers’ Shipments, Inventories, and Orders survey.
Low inventory positions may signal an impending acceleration in production and manufacturing activity, while high inventories may portend a recession and widespread layoffs.