If the most recent business inventory and sales data were garden plants, one would have to say that spring is not approaching as soon as investors would like.

That's because sales are not rising fast enough to deplete business inventories -- a trend that suggests a further inventory build-up, and the likelihood that manufacturers and businesses will trim production more in the immediate months ahead.

Business inventories fell 1.1 percent in January -- worse than the 1.0 percent Bloomberg News consensus estimate -- the Commerce Department announced Thursday. It was the fifth consecutive monthly inventory decline. Business inventories declined a revised 1.3 percent in December 2008.

Sales: Double-digit yearly decline

Meanwhile, sales declined 1.0 percent in January, primarily due to a drop in wholesale sales. Sales dropped a revised 3.4 percent in December 2008. Further, sales have plunged an astounding 14 percent in the past year.

Also, the inventory-to-sales ratio, an indicator of demand, increased to 1.43 in February -- its highest level since September 2001. In other words, at the current sales pace it would take 1.43 months for manufacturers to deplete their inventories.

Economists, business executives, monetary officials, and investors/traders monitor the inventories, sales, and inventories-to-sales statistics because they provide clues as to whether production will be adequate to keep pace with commercial activity in the months ahead. Production is a major factor in U.S. GDP growth.

Economic Analysis: For investors, the declining year-over-year sales statistic says it all: inventories are declining but sales are still falling faster. Moreover, the large 14 percent year-over-year decline provides additional evidence that this is not your father's recession; structural and technological factors are at work, in addition to the normal cyclical factors. Stung by the withdrawal of credit, U.S. recession, and wage stagnation, consumers have adjusted their budgets and are spending substantially less. If that trend continues, it implies a marked change in consumption as a percentage of GDP, among other changes. Shorter-term, of course, it's likely to delay the U.S. economic recovery.


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