When Sales Fall and Inventories Rise the Unemployment Rate Typically Rises

Posted by PITHOCRATES - July 21st, 2012

Week in Review

Inventory is the stuff businesses have made but haven’t sold yet.  Factories make things that go into inventory.  When retailers sell things they sell them from inventory.  So there is an inverse relationship between inventory and sales.  When one goes up the other goes down.  When one goes down the other goes up (see May business inventories climb 0.3 percent; sales drop by Jason Lange posted 7/16/2012 on Reuters).

Inventories are a key component of gross domestic product changes. Retail inventories outside of autos – a measure which goes into the calculation of gross domestic product – rose 0.6 percent…

Business sales edged 0.1 percent lower to $1.25 trillion in May, matching the prior month’s decline.

Sales fell 0.1% while inventories rose 0.6%.  Which means inventories have grown larger than the corresponding fall in sales.  Not good news for the people who make the things that go into inventory.  For there are apparently more of them than the current level of sales requires.  This typically portends a rise in the unemployment rate.  Which did happen.  The unemployment rate increased from 8.1% in April to 8.2% in May.

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