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Manufacturers report too much inventory, retailers too little

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ST. LOUIS — Problems with inventory continue to have an impact in the region, according to a survey by the St. Louis Federal Reserve.

Manufacturers say they have too much inventory. Retailers say they have too little.

The survey, which is released every quarter and covers an area from central Kentucky through Arkansas, traces the current misalignment to the early days of the COVID pandemic.

Nathan Jefferson, an associate economist at the St. Louis Federal Reserve, said lockdowns in spring 2020 disrupted supply chains and altered consumer spending habits. Inventories dwindled, especially among companies that relied on just-in-time inventory management.

The just-in-time method delivers goods when they become needed. It works when the flow of goods is steady, Jefferson wrote in an analysis of the survey, but “if the flows are disrupted, firms find themselves without needed inventory.”

To assure they had enough inventory, companies ordered aggressively. Inventories grew quickly, reaching the highest monthly growth on record, 2.8 percent, this February.

But, Jefferson said, post-pandemic consumer demand rose even faster. As consumers bought durable goods from retailers, the inventory shrank. After retailers hit a record low of 1.1 months’ inventory on hand in mid-2021, they had 1.2 months’ inventory on hand in July, 2022.

Before the pandemic, retailers typically had 1.3 to 1.5 months’ inventory on hand, Jefferson wrote.

Inflation has dampened consumer spending, though, and some retailers now have seasonal inventory they ordered when demand was higher, he said. Rather than paying the expense of warehousing seasonal goods for a year, he said companies are reporting plans to sell them at a discount.

These discounts are expected to hurt retail companies’ bottom lines, but Jefferson said there may be a benefit as well.

The lower prices may help to ease inflation, he said.

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