Mish Shedlock wasn’t the first or last to attempt to call the top in Business Inventories back in October, but his reasoning was particularly curious: a -0.2% m/m decline in productivity. He’s presently wrong by $31.87B and four months.
The real drivers of inventories, of course, are what build them up (production, importation), motivation to do so (busines confidence), and what reduces them (spending).
Although Industrial Production had a very small stutter step (which it has recovered from), import momentum hasn’t even slowed, and we only need to observe the ISM New Orders Index to see where future Industrial Production will be going:
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At the same time, the consumer is definitely roaring back. In the past 12 months, there are a million new payrolls (not enough, but let’s not confuse “not enough” with “still quite a lot”), with wages up $200B. Revolving Credit then surprised everyone with an increase of $23.8B over the past two months. There is a lot of spending going on, and despite high input prices, margins are increasing along with revenue.
That’s bound to give businesses the confidence to continue rebuilding inventories to prepare & respond to the resumption of consumption and economic activity.
The biggest drag I see on inventories is the stronger than expected consumption.
Or Mish could be right — but I doubt it.
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