Chart of the Day: February 10, 2023
Help on the inflation front?
Today’s chart comes from Lev Borodovsky's newsletter, The Daily Shot (highly recommended).
Figure 1 shows the recent spike in the inventory-to-sales ratio. High inventory-to-sales leads to price mark downs as companies try to unload excess inventory before it becomes obsolete.
Businesses ordered far too much inventory during the demand spike caused by the post-COVID fiscal and monetary stimulus efforts -- believing the increase in demand would last much longer than it has. That inventory has since been delivered and is not selling as expected.
As companies lower prices on excess inventory, it has an overall disinflationary impact on the macroeconomy. At the same time, it pressures revenues, leading to a compression of gross profit margins that can ultimately have a negative impact on earnings per share, cash flows, and valuations.
— Brant
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