The stockpile of goods clogging U.S. supply chains got bigger in May, despite professed desire for “destocking” at many retailers. The value of overall business inventories inched up 0.2 percent to $1.81 trillion, the U.S. Census Bureau said Friday, after climbing 0.1 percent in April.
Although sales increased in May, high inventory levels are likely to lengthen replenishment cycles and depress demand for freight transportation services. The results of dampened demand are likely to be evident in transport operators’ second-quarter earnings reports as lower U.S. freight volumes, rates and shipper spending on transportation cut into freight revenue.
Retail inventories, which dropped 0.1 percent in April, rose 0.5 percent in May, partly in response to stronger April sales. Consumers continued to spend, but at a slower pace, with retail sales rising 0.2 percent in May after a 1.4 percent spike in April, the monthly manufacturing and trade inventories and sales report said.
Raw data did show a drop in business inventories, but seasonal adjustments ironed out those decreases. The seasonally adjusted business inventory-to-sales ratio was 1.40 in May, the same as in April and up from 1.37 in the year-ago month. The adjusted retail inventory-to-sales ratio was 1.50, the same as in April and up from 1.44 in May 2015, the Census data show.
The retail inventory-to-sales ratio has been 1.50 or higher for four straight months, its highest level since May 2009, shortly before the end of the recession. In May, U.S. retail inventories were 6 percent higher than a year ago.
Higher than normal inventories that have built up over the past two years have proved difficult to draw down, as retailers and their suppliers try to balance store and e-commerce sales. Forecasting sales in an increasingly digital economy is increasingly challenging, and lack of supply chain visibility still encourages many shippers to build up excess inventory.
“I think maybe that inventory is going to settle at a level that is higher than the trough we saw a few years ago,” said Larry Gross, a senior transportation analyst at Indianapolis-based FTR Associates and president of Gross Transportation Consulting.
“Inventory levels have been moving up for quite some time, and they have remained stubbornly high," Gross said. "There is a real question of how much of that is structural and how much of it is cyclical overshoot.”