Adding to silly Commerce Department reporting of “auto sales”, today we learn business inventories were up 0.3%, led by autos up 1.1%. The rise in inventories matched the Econoday consensus estimate.
Inventories are looking to be a slight positive for second-quarter GDP as a 0.3 percent build in May offsets a 0.2 percent draw in April. But it’s inventories at auto dealers that are making the difference, jumping 1.1 percent in May and lifting the retail component to a 0.5 percent build. The May build in vehicles matches a May gain for retail sales of vehicles, though sales proved soft in June.
Wholesalers also built inventories in May, up 0.4 percent with manufacturers, however, working down their inventories by 0.1 percent. Total sales in May came in at minus 0.2 percent which pulls up the inventory-to-sales ratio to a less lean 1.38.
Whether May’s overall build points to overhang will depend on how strong June business sales will prove where the outlook for the retail sector, based on this morning’s retail sales report, is not positive.
Business Inventories
Inventories Adding To GDP?
Unlike Econoday, I have no confidence that inventories will add to GDP.
However, I have complete confidence the sales figures from the commerce department earlier today showing retail auto sales were up 0.1% in June, 0.9% in May, and 0.5% in April are total nonsense.
The question at hand is how the BLS values the inventories that are clearly stacking up on the lots of dealers.
The CPI report from earlier today says new vehicle prices are down five consecutive months and used vehicle prices are down six consecutive months.
Percent Changes by Category
One can make a case for literally anything off this kind of reporting.
Moreover, the decline in CPI (if it applies to the GDP deflator and that is another pot shot) that would tend to boost “real sales” and thus GDP.
I have a bit of time to sort all of this out, but for now, I am around 1.0% GDP growth for the second quarter.
Here are some related posts to consider.
- Retail Sales Unexpectedly Sink 2nd Month: Supposedly Car Sales Rise 3rd Month
- BLS Reports Net Negative Inflation for 5 Months: Anyone Believe That?
- On May 2 (April Numbers) I reported Auto Sales Puke Again: Year-Over-Year Totals: GM -6%, Ford -7.2%, Toyota -4.4%, Fiat-Chrysler -7.0%.
- On June 1 (May Numbers) I reported Motor Vehicle Sales Flat, Hope Turns to Second Half: What About Fleet Sales? Incentives?
- On July 3 (June Numbers) I reported Auto Sales Weak Again, Average Loan Hits Record 5.75 Years: Don’t Worry “Plateau Expected”.
Mike “Mish” Shedlock
Too much debt in the system for any of this to matter.
The alleged growth of the past 10-15 years was 100% debt – not growth at all.
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“Too much debt in the system for any of this to matter.”
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Yes. No Way No How does the economy take flight (sustained > +3.0% growth) until the debt issued addressed via pay down, write down or write off. But that means a HARD recession (and / or Depression). They’ll try and kick the can a bit further with more QE and NIRP, but that will solve NOTHING.
Japan-esque morass here we come.
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It means allowing the excesses to clear. The longer we wait to do that, the more it costs.
By postponing a recession, the Fed just made the resulting recession much worse. Now the economy must pay the costs of misallocated capital PLUS compounded interest.
Normalized interest rates are not the problem, central economic planners keeping interest rates too low for too long is the problem. The Fed caused the recession that started in 2007, and still has not ended. There was no recovery period,
We are not going to START a recession in 2018, we are going to continue the one we started in 2000 — except the original costs have been increased by indoctrinated academics (the Fed).
I don’t think we are in Japan’s situation yet, but the key word is “yet”. Unless and until academia cleans up its act and acts like adults, we have to limit the number of academics at the Fed. That is the mistake Japan made — the names changed (frequently), but they kept putting the same cult members into the BoJ and government. Same garbage in, same garbage out.
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It is likely too late to fix the problems that have accumulated. Corrupt politicians and unions have created trillions of dollars of unfunded liabilities, in the pension system, that will likely not be paid.
Similarly, the funding of Social Security, Medicare and Medicaid are also unsustainable.
The workforce is not growing enough to provide a comfortable ratio of workers to retirees.
Total unfunded liabilities are estimated somewhere in the 100 to 200 trillion dollar range. Nobody even knows how large it will be.
A lazy electorate, that just wants to be taken care of, without discomfort, is largely responsible for this whole mess.
Career Democrats and Republicans should have been voted out years ago. But the public is not really interested in political issues and just votes for the most recognizable name. That would be the one with all the lobbyist money in their campaign fund.
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Lies, lies, and more BLS lies.
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There are no truths, only interpretations. Constitution, religion, economics.
Numbers, words, mean nothing, only those learned masters can tell us what they all mean. We are but sheep requiring “tending”. Next, we will see our chocolate ration increased “from thirty grammes to twenty”, and all will be right in the world once again.
The ministry of truth said so.
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Wish we could simply worry about excess inventories as being a threat. Seems like bigger things to worry about.
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It’s like medicine today. One “pill” to correct for the previous “pill” that was the cure for side effects from our palliative treatment.
Our economy is so distorted that all we know is what we see with no way to accurately determine cause and effect, much less an actual cure. And worst still is that we are so dependent upon all of these distortions that they are scared to death to consider removing any of them.Just look at Obamacare, society dependent upon unsustainable spending that no one dares take away. Why, we can’t even reduce Medicaid GROWTH without attacks of “cuts” and DEATH.
We are so totally screwed and there is nothing to do but prep for the “unpreppable”.
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It’s the (over) promised land….
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The “over promised land”…I like that.
It’s a Wimpy Economy making no real attempt to define “next Tuesday”.
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Reblogged this on World4Justice : NOW! Lobby Forum..
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Moar QE!
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I appreciate your Micro approach to predicting GDP growth (like GDP NOW) though I tend to focus on the macro when it comes to GDP. I also tend not to worry about the coming quarter’s results as they will be revised many times anyway. I simply like to look at longer term trends and how they impact GDP. Here are a few of my favourites:
Demographics (% working age vs % retired)
Productivity growth (hard to predict, usually just wait for numbers to come out)
Trade policies (favouring trade vs restricting trade)
Immigration policies (relates to Demographics, more immigration of highly skilled young workers is a big positive)
Education and skills training (more is a positive)
Growth policies (do policies encourage growth in all areas, and particularly in tech?)
Debt levels (too much is restricting)
Health care system ( a good system is crucial to a healthy populace and a healthy economy, though it shouldn’t cost too much of GDP)
My range for US growth is around 1-2%. I thought that with Trump and the Republicans in charge, that they would bring in policies that would bring GDP growth up toward 2%. However, after watching their incompetence, I have lowered my forecast toward 1% in the long term.
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“My range for US growth is around 1-2%.”
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Yes. The drunk bum stagger economy will continue until it hits an inflection point … then the bum will do a face plant in the gutter.
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Being the only other person here that comments from a positive perspective, and doesn’t marry their every comment to their own opinion, let me ask you this. What do you get out of focusing so much on GDP. Personally, I never did, nor do I now, pay any attention to it.
Also since you often compare your country as a model, do you live in a country with a population less than that of Manhattan on a weekday?
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I hope your question was meant for me, as I will respond. Perhaps it looks like I focus on GDP because the topic is so frequently discussed here. However, it is actually not that big a deal in my personal life. My personal focus is on my family, my work, and my charitable work. I put most of my daily effort into things that I can actually have an impact on.
As to my country, I don’t like to give that info, simply because I know that some on this site will start to rant and throw insults my way which would only distract from my enjoyment of this site.
Having said that, I really enjoy this site when I can find the time to follow it. I enjoy the articles and I really enjoy reading some of the comments. There are some very insightful people who provide some interesting points of view. I like to learn from others ( like “wrld”, “will”, “jon”, “therm” etc.) . And I also like to offer up my point of view. By my nature, I am a positive person and I admit to being somewhat surprised by the amount of negativity that occasionally appears in the comments.
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Thank you.
The only reason I asked about the country is that I always find it absurd when someone compares the U.S. to Norway or Singapore, or even Canada for that matter. The U.S. due to it’s size, racial makeup, North-South, Dem-Repub, is like one big meth-amphetamine lab. Nonetheless, I love it, and am amazed by the innovation and productive capacity that most here seem to share a very different opinion of.
To me, GDP and production both seem to float around that 2-3% y/o/y increase for a reason. Asking more than that for a mature economy just doesn’t seem reasonable over a considerable period of time. Extrapolating from my own micro experience from when I worked unless you added hours to the year I was always pushing my max. Almost all my increases came from tech advances and nowadays those advances seem to have gone from the tick-tock model to a tic-tic-tic-tic model.
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fyi – in the past 10 years real GDP growth has been sub +2% 6 years.
last year growth 3% or greater 2005 … +3.3%
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Thanks Tony,
I know that, just as said above, I don’t really care much. I got into an argument about two years ago with some “esteemed” econ professor who wanted to start a GDP future market, supported by the fed, nonetheless. I laughed in his face about the viability of it. I’d rather watch paint dry than trade GDP futures. Then rattled off about 20 other reasons why its a shit for brains worthless idea.
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You’re welcome, and thank you for your contributions. I enjoy reading your comments.
As far as country comparisons go, the US has both advantages and disadvantages due to its size and ethnic diversity . Same goes for China and many other countries. The important thing is to take advantage of whatever you have.
I also admire America for its innovation and it’s many contributions to the world. That’s why I find it so surprising to hear so many negative comments from American citizens. The level of anger is shocking.
I also agree that America, like most developed economies, is a mature economy, and simply will not grow at 4% like an emerging economy can. Most developed economies can expect 2-3% growth as you say. I do believe that America’s range is only 1-2%, given the macro features that I highlighted earlier.
Finally, it was unintentional that one of my previous responses was listed as from Anonymous. Simply me not paying attention before I posted from another device.
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“The question at hand is how the BLS values the inventories that are clearly stacking up on the lots of dealers.”
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The BEA comes out with the GDP number.
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It would drive me crazy to worry about quarterly inventory numbers (which are questionable anyway) since in the long run they don’t matter at all. When thinking about any economies overall growth rate, I focus on the long term trends. However when dealing with individual companies, that’s when micro analysis is important. I’m a big believer in the accounting principle of Materiality (ie. Does it really matter?)
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BEA also publishes “real final sales of domestic product” – a number which strips out inventory gain / loss. +2.5% in Q1. The media (usually) only touts this number when there is an inventory contraction which makes the headline look bad.
But GDP faces multiple revisions (over years) that initial number often looks nothing like FINAL revision … ESPECIALLY at turning points in the economy.
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“One can make a case for literally anything off this kind of reporting.”
Baffle them with B.S.
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Agreed. Ignore the noise. Focus on the bigger economic picture.
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It’s not about :
GDP
Brexit
Trump
ISIS
Robots or AI
Russia
Illinois
Climate change
Border walls
Millennials
BLM or Soros
Amazon
automation
Obamacare
Trade treaty or tariffs
None of it matters because it’s all noise. That’s because in the debt fueled world we have arrived at in 2017, there is ONLY ONE SIGNAL : interest rates.
That signal is controlled by people who nobody elected and barely anyone can understand the veiled references of their gobbledy-gook policy statements. They meet every seven weeks and the public must wait five years to hear what was (officially) said.
Capital flows to where it gets treated best and the ability to prudently decide where that place is likely to be is very strained, given that transparent price discovery is almost non-existent under the circumstances.
In summary, the ambiguous advice we are given is that we are to “keep dancing” in this economy because “there is no alternative” (TINA).
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Yes. Focus on what they do and not what they say.
Extraordinary monetary + fiscal* measures remaining firmly in place the past 10 years tells me all I need to know.
*last FY before recession hit (2007) federal government outlays $2.7 trillion. By 2009 jumped to $3.5 trillion. Hovered around that number since – with upward bias. Current FY (2017) outlays projected to top $4 trillion,
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Mish,
Doesn’t all these reading fall within standard deviations of reporting and basically are all saying the economy is stagnating at best or on the verge of recession at worst.
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