Some Good News for Retailers--Maybe

U.S. retailers are beginning to get their inventories back in line. Helped by tax cuts, non-auto retail sales have been strong in the past three months. While the inventory data lag, growth had already begun to slow in June, and anecdotal evidence suggests that retailers feel much more comfortable about their inventory levels now than they did three months ago. Keeping control over inventories is particularly important for retailer profits as the important holiday season approaches. However, recent strong sales are not necessarily indicative of a good holiday season for retailers.

Retail sales excluding autos grew 1% in June, 0.8% in July, and strongly again in August if the chain store results are any indication. Retailers, who began building inventories intentionally last year and kept building them early this year as sales were below expectations (see Too Many T-Shirts), are succeeding in reducing inventories. High inventories hurt profits for a number of retailers in the first fiscal quarter. However, year-over-year growth of non-auto inventories was the slowest in a year in June (on a six-month moving average basis) and likely fell further in July and August

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