Global inventory hit record high amid economic uncertainty

As consumer demand falls due to rising inflation, manufacturers from Samsung to Ford are seeing an increase in their inventory, prompting worries that companies will have to adjust production in the face of a looming economic downturn.

The inventory held by 2,349 listed global manufacturing companies hit a new record $1.87 trillion at the end of March, up $97 billion from three months earlier, according to a Nikkei analysis of information from QUICK FactSet. That was the highest level in 10 years, or since comparable data was available.

This inventory buildup can be traced back to factors such as difficulty in moving products due to supply chain disruption, and some companies intentionally stocking up in case of shortages. Some businesses built up stock in anticipation of an increase in consumer demand with the reopening of economies after declines in COVID cases.

The problem is that this high level of inventory coupled with slow consumption could cause manufacturers to slam their brakes on production and cause an economic deceleration that is already underway.

The slowdown in consumer demand is particularly noticeable in electronics, such as smartphones and personal computers, as consumers feel their purchasing power has diminished due to inflation due to global commodity price hikes.

The $97 billion increase is larger than the $83 billion jump recorded in the first quarter of 2018 when global inventory levels surged due to trade tensions between the US and China.

The increase in January-March 2022 was 5.3%, the largest increase in January-March 2022, after the 6.1% gain in January-March 2018. In the first quarter of 2022, the ratio decreased by 3%, as a result of longer inventory turnover.

It took 81.1 days for businesses to sell their stock, up 3.6 days from the fourth quarter, and the longest in the last 10 years, excluding 2020 when sales fell due to COVID.

In all 12 manufacturing sectors, inventory increased. Three sectors made up 61% of the total electronics, autos and machinery.

Electronics saw a big increase, up $26.7 billion, or 6%, to $457 billion. Raw materials posted the biggest gain, followed by work in process, according to an analysis of individual company levels.

Samsung Electronics had the biggest inventory growth in dollar terms, which was $4.4 billion, up 13% from the previous quarter to $39.2 billion, according to the company that was covered in the analysis. An increase in raw materials was the reason behind the increase in $2.5 billion.

Samsung reported flat sales for the first quarter, compared to the previous quarter. In April, Samsung said it intended to build up its stock in order to avoid further problems, because of the disruption in its procurement of raw materials for memory production.

Ford Motor saw inventories go up by 21% to $14.6 billion, the highest in 25 years, while sales fell 8%.