Thursday, January 7, 2016

INVENTORIES....THE FINAL NAIL IN THE RECOVERY FAIRY TALE

INVENTORIES....THE FINAL NAIL IN THE RECOVERY FAIRY TALE COFFIN

A final nail in the recovery and the narrative that tries to support it still, would be a shutdown in auto production and sales that have been perhaps the largest single element boosting the economy to this point (which tells you how bad the rest of the economy has been since it "needed" dramatic auto gains, via debt debasement, just to eke out a plausible upward track). 

The inventory-to-sales ratio in autos in October was 1.77, seasonally-adjusted. That is above the 1.76 in August, thus now the highest since July 2008 (on the way down).


In the unadjusted series, the 1.74 ratio for October was a massive increase from 1.53 in October 2014. In fact, October's level of inventory is so far out of historical alignment that it is only close in comparison to October 2008 – dating back to the series' inception in 1992.


The only conclusion that can be drawn from all this is one that adds up to looming recession, far more than what has already been seen so far. The inventory imbalance has drawn on far longer than any historical precedence (especially compared to recession cycles before 1990) and has spread throughout the "goods economy" to even infest autos.

There must be an adjustment at some point, as businesses cannot finance and hold inventory for Janet Yellen's sake. Companies have been giving economists the benefit of the doubt in that concern, nervously expecting and awaiting the fairy tale to come true. Both the inventory imbalance and the persistent and lingering contraction in sales (or at least a dramatic slowing in some industries, apparently including autos) risks an eventual economy-wide (given how widespread the inventory problem has become now) re-alignment; i.e., full recession. At this point, there is no "if" but rather "when" and, more importantly with inventory to such a great degree, "how much."

The comparison to the dot-com recession is relevant; we already have a contraction in sales worse than that entire period and still no inventory resolution. Quite the opposite, actually, as inventory has spun up to levels only seen just prior to the Great Recession's full weight.

A MASSIVE CRISIS AND CRASH ARE AT OUR DOORSTEP....





 

No comments:

Post a Comment