Business inventories rose 0.2% for the month.
Bloomberg Econoday calls this a “favorable position“, noting the “lean 1.39” inventory-to-sales ratio.
Let’s investigate the claims with a look at the Econoday comments followed by series of updated charts.
Highlights
Inventories swung into a favorable position at the end of the second quarter, up only 0.2 percent in lagging data for June which is far below a 1.2 percent jump in sales. The mix pulls down the stock-to-sales ratio one notch to a lean 1.39. Leading a 0.5 percent rise in retail inventories are auto inventories where a 0.9 percent increase may not prove that excessive given what proved to be a very strong July for auto sales. Wholesale inventories rose 0.3 percent in June while inventories at manufacturers, a sector where demand is soft, slipped 0.1 percent for a second straight month to ease the risk of overhang. Inventory data look well balanced going into third quarter, a quarter when demand (this morning’s retail sales report notwithstanding) is expected to prove strong.
Above emphasis in italics is mine.Questioning “Favorably Lean”
As we have seen, the retail sales number came in anything but strong. For details, please see Retail Sales “Solidly” Flat.
Total Business: Inventory to Sales Ratio
Retailers: Inventory to Sales Ratio
Merchant Wholesalers: Inventories to Sales Ratio
Manufacturers: Inventories to Sales Ratio
Figments of Imagination
Favorably lean inventories are the figment of a rather strong imagination.
Mike “Mish” Shedlock
#1 All data will be Economic Optimistic even when it isn’t.
#2 If your not fabricating your data to be optimistic your are gone. (ask any accountant)
#3 I once heard a young lady say….I really like Mr. X he always tells me how good I look, and I do not care if he’s lying, it makes me FEEL good.
“Inventory data look well balanced going into third quarter, a quarter when demand (this morning’s retail sales report notwithstanding) is expected to prove strong.”
Really?
Because just yesterday Mish highlighted some “expert” flapping of gums:
“This election introduces a Mount Everest of uncertainty,” said Kevin Swift, chief economist at the American Chemistry Council.
…
“For the first time in this election cycle, most economists surveyed by The Wall Street Journal believe uncertainty from the coming election is crimping economic activity.”
June 2016 Sales versus June 2015 Sales
-0.6%
June 2016 Inventories versus June 2015 Inventories
+0.5%
In about 6 weeks 2017 health insurance premium notices hitting mailboxes …
That all depends on the definition of ‘favorable’.
It’s favorable to the author of the article because it provides him with work product, which puts food on his table.
It’s favorable abstractly because, for example, a 2.0 ration would be worse unless sales vs restocking supported a 2.0 ratio.
Otherwise, it’s just goddledygook. Perhaps cynical gobbldeygook because the author and editor knew it was just page filler intended to attract eyes and sell advertising only.
Nothing personal, but that kind of story is one I ignore completely. It presumes implicitly that someone know ‘perfect’ numbers for this or that and the number in question is in relation to a known quantity that exists absolutely. It’s soft salesmanship. Are they selling ads or are they selling the Establishment?
It’s an example of ‘expert fraud’. Mathy economics. Might be fish. Might be fowl. Might be bulls*it.
There’s nothing wrong with someone having an opinion and telling the world. The author / expert says ‘x’ is good or bad. No problem. Just explain why. Nothing bad about being wrong if an honest opinion accompanies. If there’s no why, or one that doesn’t come across as a press release, then it’s something I ignore,
The excerpt from the article looked like ignorable crap.
Context matters. It is the recurrent theme here as in reality. The “opinion” expressed is not an honest one, but one calculated to make things seem better than they are. Propaganda.
How are the war armament inventories doing, Mish?
I bet they can’t stock the shelves fast enough.
A perfect business model would be more bullets, missiles and drones – while fewer American body bags to distract the public.
Keep that economy humming!
Anecdotal evidence, but relevant:
Stores in my area often have “sidewalk sales” to attract business in otherwise quiet summer weeks. The pickings were REALLY lean this year — as in very few stores participated.
I asked a chain store manager about this, and he said “sell what in the sidewalk sales? we don’t carry as much inventory, because whatever we don’t sell is a loss for the store (and he didn’t have to say it is likely a loss of the store manager’s job). We can always get more inventory overnight from one central warehouse if needed.”
Most importantly , unsold summer inventory means they have no cash to buy winter inventory. Banks will not lend money for new inventory — not at Yellen’s fraudulent 0%, not at high yield 6-7%, not even at 14%
“Just in time” inventory used to be Walmart’s specialty… now even the mom and pop stores are doing it out of necessity.
Credit worthy consumers are out of credit, and have homes filled with junk that still has the tag on it. Non credit worthy customers are not credit worthy. And for a business to lock up thousands / millions in inventory makes very little sense — it hurts the balance sheet but does not enhance sales.
Lean inventories are not favorable or unfavorable, unless you are a clueless econ PhD. Balance sheet management, overnight shipping and rapidly obsolete merchandise all suggest lean inventories will stay that way even if we get an actual economic recovery.
It says a lot about wasteful spending at banks / trading desks that they are still paying for Bloomberg econoday gibberish. Many high school students can make a spreadsheet that produces random numbers for pizza money — and it will be just as accurate as the econ PhDs paid (not earning) six figures
The lean is favorable relative to the past few months.
Propaganda by cherry-picking the facts.
At least the facts are checked. ;0)