In light of the recent and unexpected decline in retail sales, let’s put a spotlight on the equally unexpected buildup in the inventory-to-sales ratio, three different ways.
Wholesalers Inventories-to-Sales Ratio
Retailers Inventories-to-Sales Ratio
Total Business Inventories-to-Sales Ratio
One way or another these inventory buildups will be worked off.
- Sales must improve
- Production must decline
- Some combination of the above
The obvious problem with number one is easy to explain: Retail Sales Down, January Sales Revised to -0.4%
Bloomberg Econoday commented on retail sales as follows: “Consumer spending did not get off to a good start after all in 2016 as big downward revisions to January retail sales badly upstage respectable strength in February.”
I also point out a net 10% of large corporations plan to reduce headcount in 2016.
For details, please see 38% of Companies to Reduce Employment in 2016, Only 29% Expect Increase: Five Consequences.
With hiring plans negative and with 82.8% Expecting Real Incomes Will Decline in 2016, faith in consumer willingness and ability to work off the buildup in inventories is quite a bit misplaced.
Mike “Mish” Shedlock