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Inventory-to-Sales Ratio Down So Low Signals Jobs: Chart of Day

U.S. business inventories are so low relative to demand that any increase may act as a catalyst for larger companies to add workers, according to Nicholas Colas, chief market strategist at BNY ConvergEx Group.

The CHART OF THE DAY tracks the inventory-to-sales ratio, which fell this year to the lowest reading since the Commerce Department started compiling the monthly data in 1992.

Stockpiles declined to 1.23 times sales in March from a peak of 1.46 times, as the top panel illustrates. The latter ratio was reached in December 2008 and matched in each of the first three months of last year.

Retail inventories have been hit especially hard, as depicted in the bottom panel. They sank as low as 1.33 times sales this year after averaging 1.59 times from 1992 through last year. Comparable ratios for manufacturers and wholesalers also appear in the panel.

All the ratios rose in May, the latest month available. Further growth represents an example of “current economic conditions that could engender future hiring among large companies,” Colas wrote today in a report.

Rising labor productivity and corporate cash also are favorable signs for employment, the report said. Productivity climbed 6.1 percent in the first quarter from a year earlier, equaling the fastest growth rate since 1995. Standard & Poor’s 500 companies held $836.8 billion in cash as of March 31 after six straight quarters of increases, according to S&P.

(To save a copy of the chart, click here.)

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