Businesses are stocking inventory again
One of the reasons the economy grew at a faster rate in the second quarter than it did in the first was because businesses spent more on inventories. That might sound a little surprising, given that consumers haven’t been buying as much stuff as they had earlier in the pandemic. But, businesses are getting a little better at figuring out how much inventory is just right.
Let’s start with some context. Back at the end of last year, inventory levels rose by a lot.
Jason Miller, a professor of supply chain management at Michigan State University, said that was partly because products that businesses ordered earlier in 2022 finally arrived.
“But also the fact that sales in certain product categories really slowed down in the fourth quarter of last year,” Miller said. “And firms ended up over-ordering because those sales slowed more than expected.”
Then, in the first quarter of this year, inventories barely changed. Businesses learned that they shouldn’t over-order, Miller said, because consumers might not show up.
“You know, inventory managers have been able to get a better sense of what demand is going to be,” he said.
In the second quarter of this year, inventories did move up again. But that buildup was tiny, by historical standards, said Kathy Bostjancic, chief economist at Nationwide.
“What I take away is that companies are being cautious in building up their inventories. And we see that across the manufacturing, wholesale and the retail sector,” Bostjancic said.
She said it’s a good sign that companies are figuring out the right amount of inventory they need. “For now, they’re comfortable with the goods they have on hand, and it may be the levels are slightly higher than in the past, but they’re certainly not as bloated as they were a year ago.”
The downside? Bostjancic said consumers can expect fewer discounts, since companies aren’t as desperate to get rid of extra products.
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