Inventories contract slightly for second month in a row

Manufacturers inventories edged down a modest 0.1% to $65.3 billion in July, Statistics Canada reports.

Although this is the second consecutive decrease, manufacturers’ inventories remained near record levels, despite the general decline in shipments since late 2000. That either means manufacturers are hopeful for a quick economic turnaround and so are keeping stock on hand or that they are not moving fast enough to enact the corrective action necessary to bring about an economic turnaround.

Decreases in raw materials and finished products were offset by higher goods-in-process inventories. Finished-product inventories have remained high in recent months, despite manufacturers’ efforts to clear inventories by cutting production. As noted in the release of the July Business Conditions Survey for manufacturing, 30% of manufacturers reported that their finished-product inventories were too high.

The railroad rolling stock industry (-6.8%) was the largest contributor to July’s decrease in inventories. The declines in this industry were largely due to lower goods-in-process and raw material inventories. In the paper industry, lower stocks of finished products pulled down the value of inventories 1.7%, while in the plastic and rubber products industry raw material levels slipped, resulting in a 2.9% drop in their inventory value.

Offsetting increases were reported by the aerospace product and parts (+1.4%) and the fabricated metal products (+2.4%) industries.

The inventory-to-shipment ratio remained unchanged at 1.52 in July, following a sharp climb in June. Although manufacturing shipments have dropped significantly since late 2000, inventory levels have persisted. The trend, which had been consistently climbing since the fourth quarter of 1999, edged up again in July. The finished-product inventory-to-shipment ratio was also unchanged in July at 0.47. The trend of the finished-product inventory-to-shipment ratio has been rising since early 2000.