Wholesale inventories, which account for about 25% of all business inventories, fell 0.5% in December, the largest drop since May 2003. The consensus expected an increase of 0.5%. A large decline in petroleum inventories played a role, but there was also large impact from the automobile sector.
The inventory decline fits with the ISM report for January, which showed that the inventory component fell the most in about 23 years. The declines are occurring because businesses have been very cautious about their production schedules, amid worries that high energy costs and the weak housing market will affect demand.
Something will have to give. Either businesses will have to play catch-up and rev up their production schedules, or they can retrench more and spur weakness in the economy. The longer that consumers show resilience, the more pressure there will be upon companies to increase production, unless they would rather give up market share, an unlikely choice.
P.S. Will you be there when Cramer makes his next move?
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Tony Crescenzi Blog Construction Job Losses Offset in New Data 2/8/2007 9:15 AM EST The absence of any material effect from the slowdown in thehousing sector is most interesting.
Tony Crescenzi Blog Consumer Confidence Up 2/7/2007 2:28 PM EST It dovetails nicely with spending data.
Tony Crescenzi Blog Mortgage Applications Steady 2/7/2007 11:41 AM EST A key index falls slightly, but stays high enough to suggest stabilization in home sales.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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