Cause for Alarm?

When the Commerce Department reported last week that business inventories had risen $2.5 billion since last August--to a new record of $75 billion--some businessmen began to jitter. Are inventories too big? Is there danger of a break in prices that might bring on a recession?

Actually, warehouses are storing more goods because with rising sales manufacturers are producing more, and consequently more goods are in transit. In some cities there were signs that inventories were getting too big in a few items, e.g., electrical appliances. But General Electric reported last week that, overall, appliances are moving so fast that its own inventories are only 75% as high as a year ago. Furthermore, as the Commerce Department itself pointed out, sales of all lines have risen so much that the ratio of inventory to sales is actually lower than a year ago. April's retail sales of $14.3 billion were up a bouncing 7% above a year ago. And a breakdown of inventories (see chart) shows that both retail and wholesale inventories are just about where they were last year. Most of the overall rise has taken place in manufacturing because of the necessity of storing materials for big defense orders. In a large measure, the inventory rise is a barometer of increasing defense production.

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