September 27, 2021

Low Inventory Is a Good Sign for the U.S. Economy

Many parts of Economic Data show that the economy is slowing down, and some data show strength. Among them is the retailer’s inventory-to-sales ratio.

This ratio indicates the store’s inventory level relative to sales. Theoretically, the lower the ratio, the more efficiently the company can allocate capital because there is no money tied to unsold products.

In the extreme, the theoretically perfect value for inventory-to-sales ratio is 1.0. This is because it means that the inventory level exactly matches the sales. In reality, retailers are missing out on sales because they don’t always find what their customers are looking for.

For most of the last decade, this ratio has been close to 1.5. This ratio dropped to a low of 1.07 in April and then recovered to 1.08 in the latest report.

Inventories are lower than usual

Low inventory is not a bad thing

At the current level,…

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