Business inventories are the dollar amount of inventories held by manufacturers, wholesalers, and retailers as presented by the Census Bureau. The level of inventories in relation to sales is an important indicator of the near-term direction of production activity.
Business inventories are essentially the amount of all products available to sell to other businesses and/or the end consumer. When tracked alongside a sales index, production activity in the near term can be predicted.
Inventories tend to rise when economic conditions are strong; since sales are rising at the same time, the inventory-to-sales ratio may remain stable, or rise at a very slow pace. Inventories tend to drop when economic conditions are weak; since sales are falling at the same time, the inventory-to-sales ratio may remain relatively stable. The inventories-to-sales ratio then begins to rise as sales fall more quickly than inventory growth.