INVENTORY CONSENSUS (Positive Consensus/Bear Market Indicator) Warehouses are busy

April 30, 2015

US companies are filling up their warehouses despite sales being essentially flat. The ratio of inventory to sales is at the highest level since the depths of the last recession in 2008-09. The inventory-to-sales ratio measures how many months it takes to sell off inventories based on the current sales pace. It’s one way to determine if companies have too much or too little product on hand—businesses want to have enough so they don’t miss out on sales but not so much that things are sitting around for months at a time.

Companies are filling up their warehouses which is good...as long as they have people willing to buy and empty that warehouse out. History shows it doesn't work out that way

Companies are filling up their warehouses which is good...as long as they have people willing to buy and empty that warehouse out. History shows it doesn't work out that way

“this strength in inventories is an unfavorable development for fourth-quarter growth. It is very early in the fourth-quarter data cycle, but we see downside risk to our 2.5% real GDP forecast,” J.P. Morgan economist Daniel Silver said in a note to clients.

As long as there are willing buyers for their products, carrying higher inventory can be a good thing as it can trigger hiring of additional staff, purchase of materials which are positives from an economic output perspective, however history has shown that companies have a hard time forecasting demand and will then get caught with excess inventory which they will be forced to mark down. Ultimately this will impact their profitability. Stock prices may come under pressure especially after "will the Fed raise rates" soap opera reaches its crescendo in December.