Retailers, factories in inventory

According to a Federal Reserve Bank report, several industries in Arkansas and surrounding states are swamped with excess inventory, and consumers are likely to see more discounts during the holidays.

Retailers and manufacturers have stockpiled essential goods to overcompensate for pandemic-induced shortages and delivery disruptions that follow global supply chain grunts. Both sectors “added record amounts of inventory during the pandemic,” the Fed’s office in St. Louis reported in its quarterly survey of regional businesses.

Consumers will likely benefit from discounts and price cuts as the Christmas holiday shopping season approaches. “This could lead to an immediate drop in prices, especially for durable goods and seasonal items like clothing and appliances,” Nathan Jefferson, the Fed economist who wrote the report, said on Tuesday.

Companies in the logistics, manufacturing and retail sectors held inventories above or below desired levels in the second quarter. Business inventories have been strong all year and monthly growth continues at a pace not seen in nearly 40 years.

Nationally, retailers had stocked a record $732 billion in inventory through July, up 21% from a year ago, according to the Census Bureau. And, with seasonal clothing and style changes on the horizon, retailers will be motivated to reduce inventory, Jefferson said.

“They placed these orders several quarters ago and they are finally coming as consumer spending has changed. [down]”, Jefferson said. “They don’t want to carry those costs for too long.

It’s a delicate balancing act that could tip in favor of U.S. buyers through the end of the year, Jefferson said. “It looks like retailers might be unloading these products at discounted prices,” he said. “They really want to avoid stockpiling and warehousing these products until next summer.

“As we move forward into the remainder of this year,” Jefferson said, “this is something that could lead to some discounted activity.”

Walmart “reported strong inventory in the second quarter,” Jefferson said, noting the global retailer reflected industry woes. “They are one of the most high-profile examples of that.”

For manufacturers, increased inventory was needed to overcome supply chain disruptions. Running out of inventory can slow down a factory or lead to significant production delays. Material storage is a safety net to avoid the risks of just-in-time delivery.