Some manufacturers may ramp up inventories this year

In addition to all the inflation data we’re getting this week, we’re also due for a read on business inventories, courtesy of the Department of Commerce.

Its most recent report found that in December, inventories rose at retailers, wholesalers — even manufacturers.

Which is noteworthy, considering that many companies have been trying to get rid of the excess inventory they built up earlier in the pandemic.

Companies have been clearing out excess inventory for more than a year and a half now. And a lot of them have been pretty successful.

“So right now, we’re sitting probably in the best position that we’ve been, really honestly since the COVID-19 pandemic started,” said Jason Miller, a professor of supply chain management at Michigan State University.

Big retailers, including Target and Walmart, have been using discounts to help bring down their inventories.

And instead of building them up again, Miller said those retailers are likely to keep inventories stable to stay in line with customer demand.

“Right now, in an environment where demand is feeling fairly flat at the moment in many sectors, stabilization is what we would desire, so long as demand is not changing,” he said.

There are still some sectors where inventories are elevated. Miller says alcohol wholesalers, for example, are carrying too much product. Same with clothing companies.

“Those had to deal with very rapid shifts in consumer spending patterns. I mean, the sweatpant phase, once people started going out again, that shift back to more traditional garb,” he said.

But it’s a different story when you talk to manufacturers, said Tim Fiore at the Institute for Supply Management.

He surveys manufacturers about their customers and how much product they need, and right now, manufacturers say their customers’ inventories are too low.

“Which then means that they have to turn to those suppliers and say, ‘ship me more product,'” Fiore said.

And that could cause manufacturers to ramp up production. Fiore said that’s welcome news for a sector that’s been struggling.

“I think we hit the trough in manufacturing back in August-September of last year. I’m hoping that the month of March, that the month that we’re in, is going to be an expansion month,” he said.

If that happens it’d be the first expansion in the manufacturing sector in 17 months.