After months of glut, manufacturers now say inventories are almost “too low”
After months of glut, manufacturers now say inventories are almost “too low”
We’ve known for a while now that consumers are spending more on services these days and less on goods. That’s forced the businesses that sell goods to purge a lot of the inventory they built up early in the pandemic.
Their efforts seem to be working. This week, manufacturers surveyed by the Institute for Supply Management said that their clients’ inventories shrank in June. In fact, the ISM said those inventories are now hovering near levels it considers “too low.”
But what does it all mean?
For one, low inventory levels are a sign that manufacturers and their clients have been managing the economic slowdown really well.
“‘Really well’ means that nobody is wasting their cash resources on inventory that nobody needs,” said Timothy Fiore with ISM.
He said if inventories are too low, that could be a sign that businesses might want to stock up on goods in the future.
But what’s more likely, he said, is that businesses are realizing they just don’t need to stock up.
“This is consistent with factory output getting better synced up with true demand at the ultimate customer level,” Fiore said.
Even though demand for goods has been falling, people are still spending money on what are called discretionary products — things like furniture and clothing — said Mickey Chadha at Moody’s.
“Part of that is unemployment is still low,” he said. “That’s holding up a lot of the spending.”
But if the labor market gets worse and spending softens, companies might have to lower their inventory levels again.
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