Yes, we actually track this. Companies report the balance sheet number; they track inventory levels copiously. We then add up the reported inventories of all n-hundred companies tracked in the index.
And everything is relative in context. That is, some subsets of inventories are cyclical, right? You'd expect tractor part-related inventories to be depleted in September, and then restocked into May when they start selling a lot of tractors again, at least those for farming purposes.
If, with all the proper stats elements adjusted, inventories then rise on a relative and absolute basis, that's likely a bad moon a-risin' for the economy. Less demand than what companies expected; companies will have over-produced stuff to sell. So then they have to cut prices to move things off the shelves, and...it's all just a mess.
So that inventory index number is actually really important for investors and economists trying to figure out if the canary in the mineshaft is dying, or just, um...yawning.
Related or Semi-related Video
Finance: What is work-in-process invento...3 Views
finance- a la shmoop. what is work-in-process inventory? your company
junk in the trunk makes enema kits for Elephants . what they get stopped up too. [tower with "junk in the trunk" written on it]
just need you know big bags. anyway so you've extruded ten thousand bags. you
need ten thousand giant hooks to hang the bags on palm trees and ten thousand
tube thingies for the you know de new mall. they cost you a total of 60 grand
to produce and are not yet packaged. the product isn't finished.
in fact the rubber hosing and so on has to be made of a special material that
takes three months to fully dry. you know that African climate is hell on rubber.
you also have four tons of rubber in blocks sitting around the factory floor [ants crawl across the floor]
with ants singing to it. and you have a mile of wire you'll eventually Bend into
bag hanging hooks it's just sitting in a coil.
alright you paid for the rubber blocks, and the wire already it's just sitting
there so these elements of product are in process. the product isn't finished
completed or ready to ship. so work in process inventory really just consists
of raw materials at various stages of production. and you know generally work
in processes just sitting on the factory floor versus out the door when it then
becomes a finished goods. and just remember that concept for you next time
you're unpacking a pachyderm. [woman in white coat peeks out from behind an elephant]
Up Next
What is inventory? From a financial perspective, inventory usually consists of A) raw materials for manufacturing products, B) products in the mids...
Inventory turnover...way less delicious than an apple turnover. So...what is it?