A version of this post was originally published on TKer.co.
You might have noticed that your options at the store are more limited than usual. This is because of the supply chain issues we all hear about every day.
And don’t bother asking sales reps if they have more of anything in the backroom or the warehouse. Inventory levels across all industries are depleted.
According to Census data released Tuesday, the inventory/sales ratio¹ for all businesses stood at 1.26 in September, down from 1.35 during the prior year. Back in September 2019, before the pandemic disrupted the supply chain, this ratio was elevated at 1.43.
For retailers specifically, the inventory/sales ratio was just 1.09 in September, down from 1.47 during the same month in 2019. In other words, retailers are selling stuff almost as quickly as it gets stocked.
“A sizeable inventory build is coming,” Ellen Zentner, chief U.S. economist at Morgan Stanley, wrote last Sunday. “The substantial swing in inventories as clogged supply chains ease is the greatest story for the 2022 outlook yet untold.“
Inventory building will juice GDP in 2022
Economists agree that these low inventory levels present a big tailwind for the economy.
“Much of the very strong demand for goods this year was met by running down stockpiles,” Michael Feroli, chief U.S. economist at JPMorgan, wrote on Wednesday. “Most business sentiment gauges indicate the level of inventories is uncomfortably low, and we expect replenishing stocks could add 0.5%-pt to GDP growth next year.“
It’s hard enough to get someone to come to your store. When your inventories are “uncomfortably low,” you risk not having what the customer wants. And having to turn potential customers away because of lack of inventory can become a costly missed opportunity.
Of course, there’s also the risk of having too much inventory. But that risk seems limited considering the amount of spending that consumers and businesses have the capacity to do right now.
“Strong demand and a substantial backlog of orders will keep businesses incentivized to continue rebuilding inventories, while supply-chain disruptions are expected to dissipate over the coming quarters,” Mahir Rasheed, U.S. economist at Oxford Economics, wrote on Tuesday. “Inventory rebuilding is expected to add 0.5ppts to GDP growth in 2022, its highest contribution since 2010.“
Higher inventory levels could lead to more spending as desired goods become more readily available.
Bonus benefit
Clearances and promotional pricing are things that haven’t been happening much lately because businesses have been selling out of a lot of things at full price. This helps to…
Read More: ‘The greatest story for the 2022 outlook yet untold’