Restraint in the Stockroom

THE ECONOMY

In times of economic vigor, companies tend to increase their inventories, expecting even greater sales ahead and hoping to avoid possible increases in the cost of materials. The U.S. economy is certainly healthy--but the supplies on the nation's shelves have not been building up in their usual relation to sales. In fact, the Commerce Department announced last week, business inventories in January actually declined by $160 million (to $103 billion), the first monthly drop since early 1961. What is going on?

The answer lies chiefly in the improved skill of U.S. businessmen. Since financing a stockpile can cost a firm up to 20% of its sales dollar, businessmen have been working steadily at machines and methods designed to make large inventories unnecessary. Better sales projections now enable companies to anticipate their future needs more closely, and speedier deliveries from suppliers with ample plant capacity make it unnecessary to keep big stocks on hand. Automated warehouses make possible much tighter control of inventories; computers are increasingly being put to work measuring the amount of stock and reordering.

Although manufacturers expect their sales to rise at least 6% to a new record this year, they have shown no intention of panicking into a massive inventory buildup, plan to buy just enough to keep stocks at the present ratio of 1.5 times sales volume. Their restraint is important to the economy, since rapid buildups during past periods of good business have had a major hand in triggering recessions. It also means that inventories, long used as a dependable indicator, from now on will be far less valuable in charting the course of the economy.

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