The inventory to sales ratio is maintained by the Census, of all agencies. It measures the inventory of goods from retailers and manufacturers, as well as the sales of goods from these same people.
The ratio should always be greater than one, since you can't really sell something that doesn't exist yet. The closer to one the ratio gets, the leaner the supply chain is. The higher the ratio, the more slack that exists in the system.
The ratio looks like this:
What a mess. I wonder what happens if we break it up by quarter?
Hmm, looks like there is some strong seasonality there, especially in the first quarter when retailers have a bunch of unsold Christmas goods. Q1 2009 when things went downhill, with a bunch of unsold goods just sitting on shelves
Q1 2010 was much milder, since retailers ordered far less goods.
Now what happens if we just look at sales, which is much more volatile than inventory? Sales are demand for goods, inventory is supply of goods, demand is always fickle and changing whereas there is a whole chain of events that lead up to supply, so it is far less responsive.
Here is sales. Things to notice, from 1992 to about 2001 things were steadily increasing. From 2001 until about 2004 things were pretty static, not much happening and then from 2004 to 2008, sales increased like crazy. So we have dot com bubble in the 1990’s, then 2001 recession and a muddling until 2004 when the housing boom took off and then a huge crash when the housing boom ended.
Now it seems that sales are beginning to increase, like they always do in the second quarter, then will probably be flat in the third quarter and then a slight rise or flat in the fourth quarter before going down again in Q1 2011. So where we are now in 2010 is where we were in 2006 in terms of sales.
What I cannot understand is why sales continued to increase in 2008 when we were officially in a recession? I think it may have to do with fuel prices, since they are included in retail sales, or maybe it just hadn’t hit home yet that we were screwed and people didn’t switch to saving mode, but by Q1 2009, it all came to a head.
Fun stuff.
The ratio should always be greater than one, since you can't really sell something that doesn't exist yet. The closer to one the ratio gets, the leaner the supply chain is. The higher the ratio, the more slack that exists in the system.
The ratio looks like this:
What a mess. I wonder what happens if we break it up by quarter?
Hmm, looks like there is some strong seasonality there, especially in the first quarter when retailers have a bunch of unsold Christmas goods. Q1 2009 when things went downhill, with a bunch of unsold goods just sitting on shelves
Q1 2010 was much milder, since retailers ordered far less goods.
Now what happens if we just look at sales, which is much more volatile than inventory? Sales are demand for goods, inventory is supply of goods, demand is always fickle and changing whereas there is a whole chain of events that lead up to supply, so it is far less responsive.
Here is sales. Things to notice, from 1992 to about 2001 things were steadily increasing. From 2001 until about 2004 things were pretty static, not much happening and then from 2004 to 2008, sales increased like crazy. So we have dot com bubble in the 1990’s, then 2001 recession and a muddling until 2004 when the housing boom took off and then a huge crash when the housing boom ended.
Now it seems that sales are beginning to increase, like they always do in the second quarter, then will probably be flat in the third quarter and then a slight rise or flat in the fourth quarter before going down again in Q1 2011. So where we are now in 2010 is where we were in 2006 in terms of sales.
What I cannot understand is why sales continued to increase in 2008 when we were officially in a recession? I think it may have to do with fuel prices, since they are included in retail sales, or maybe it just hadn’t hit home yet that we were screwed and people didn’t switch to saving mode, but by Q1 2009, it all came to a head.
Fun stuff.
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