Inventories 2000-2005 (click for sharper view)

Annotated raw data 1995-2005 (click for sharper view)

Is this just a “soft spot” or is this telling a different story?
Some might note that inventories are not as out of hand today as they were in spots between 1998 and 2000. Then again, we did not have a Y2K scare to look forward to, panic buying of fiber, PC replacement cycles every 4 months and “just in time” delivery of goods was not as prevalent as it is now.

GDP 2000-2005 (click for sharper view)

No matter how you slice it, today’s GDP numbers were horrid. Economists had been expecting the GDP to increase 3.6% in the first quarter. Instead GDP came in at a shocking 3.1% even though domestic purchases increased 4.4%.

First-quarter inventories grew by a staggering $80.2 billion, adding 1.2 percentage points to GDP and marking the largest inventory contribution to growth in three years. In other words, over 1/3 of the GDP was inventory buildup three plus years into a “recovery” and with the FED merrily hiking away.

If there is pent-up demand for anything someone please tell me for what. Has Greenspan finally managed to convince everyone to increase their orders and that this recovery “is real” just as the curtains are about to fall on it?

In other news it was reported that real disposable incomes fell 0.3% in the first quarter and in a separate report the Labor Department said initial jobless claims increased by 21,000 to 320,000 last week. Neither of those looks like they will sustain consumption at this insane pace.

This “recovery” is all but over. A recession is coming up. It will be brutal. Greenspan’s proclaimed victory over deflation will soon be put to the test.

Mish