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Here Is The "Growth" - Inventory Hoarding Accounts For Nearly 60% Of GDP Increase In Past Year

Tyler Durden's picture




 

As we reported earlier, while on the surface the headline revised Q3 GDP number was a stunner coming at 3.6%, the reality is that more than 100% of the growth from the initial estimate came from a revised estimate of how many private Inventories were stockpiled in the quarter. The reality was that of the $230 billion in total increase in SAAR GDP, $146 billion of this, or over 63%, was due to inventory stockpiling.

So how does inventory hoarding - that most hollow of "growth" components as it relies on future purchases by a consumer who has increasingly less purchasing power - look like historically? The chart below shows the quarterly change in the revised GDP series broken down by Inventory (yellow) and all other non-Inventory components comprising GDP (blue).

But where the scramble to accumulate inventory in hopes that it will be sold, profitably, sooner or later to buyers either domestic or foreign, is seen most vividly, is in the data from the past 4 quarters, or the trailing year starting in Q3 2012 and ending with the just released revised Q3 2013 number. The result is that of the $534 billion rise in nominal GDP in the past year, a whopping 56% of this is due to nothing else but inventory hoarding.

The problem with inventory hoarding, however, is that at some point it will have to be "unhoarded." Which is why expect many downward revisions to future GDP as this inventory overhang has to be destocked.

 

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Thu, 12/05/2013 - 11:25 | 4217567 Proofreder
Proofreder's picture

Buy Moar, moar, moar !

Gotta SAVE the inventory.

 

Oh, never mind ...

Thu, 12/05/2013 - 11:24 | 4217570 Proofreder
Proofreder's picture

On second thought, 

If you like your inventory, you can keep it!

Thu, 12/05/2013 - 11:28 | 4217576 TheFourthStooge-ing
TheFourthStooge-ing's picture

Moar groath!!!

Inventory groath! Unemployment groath! Debt groath!

Groath! Groath! Groath!

Thu, 12/05/2013 - 11:36 | 4217604 SAT 800
SAT 800's picture

you're cracking me up. Yeah. that's about my take on the whole thing. they're "groath" crazy; to use your wonderful word. Any kind will do.

Thu, 12/05/2013 - 12:36 | 4217802 max2205
max2205's picture

I don't know. ...don't they get taxed on year end inventory....everything MUST go!

Thu, 12/05/2013 - 12:48 | 4217845 kaiserhoff
kaiserhoff's picture

Inventory hoarding on a local level is what most of us are doing.

It's another way to say fear and loathing of fiat,

or don't bail me in, Bro.

Thu, 12/05/2013 - 14:16 | 4218303 Upswaller
Upswaller's picture

Tyler says "hoarding" like it's a Bad thing.

Thu, 12/05/2013 - 11:41 | 4217605 hedgeless_horseman
hedgeless_horseman's picture

 

 

The problem with inventory hoarding, however, is that at some point it
will have to be "unhoarded." Which is why expect many downward revisions
to future GDP as this inventory overhang has to be destocked.

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Thu, 12/05/2013 - 11:42 | 4217621 Cognitive Dissonance
Cognitive Dissonance's picture

When I practice on the range am I destocking my ammunition inventory?  :)

Thu, 12/05/2013 - 11:50 | 4217652 ParkAveFlasher
ParkAveFlasher's picture

"Destocking" ... lol ... I work for a manufacturer of retail consumer products, that was the excuse for our lousy results this quarter ... "retailer destocking" ... which means all prior comparison quarterly results that showed groath simply presented sales without regarding sell-through to a consumer.  Your bullets are consumed when you fire them (I know you know this but for the youngin's I'd like to spell this out).  "Destocking" is the retailers saying to the manufacturers, "all this shit you are making us hold on to, take it back or we will bust your pricing agreements."

Thu, 12/05/2013 - 12:02 | 4217680 Fredo Corleone
Fredo Corleone's picture

"Moar groath !"

I like the look of that. Belongs on a tee shirt or coffee mug, with an image of Krugman.

Thu, 12/05/2013 - 12:24 | 4217767 krispkritter
krispkritter's picture

I refer to it as 'recycling'...shoot it, reload it, shoot it again.

Thu, 12/05/2013 - 15:04 | 4218535 Oldwood
Oldwood's picture

So you are saying we should expect a big sale any day? Highly deflationary, no? The slippery slope of stupid shit is heading our way.

Thu, 12/05/2013 - 11:29 | 4217580 ParkAveFlasher
ParkAveFlasher's picture

More like, "if you like your production, you can warehouse it your damn self!"  Don't count out brick-and-mortar yet ... I mean, where will you stack all those boxes of debt-financed, manufactured, delivered, non-recyclable low-margin product? 

Thu, 12/05/2013 - 11:31 | 4217588 SWRichmond
SWRichmond's picture

SO is this channel-stuffing, or hoarding in expectation of a hyperinflation?  High levels of inventory make no sense in a looming deflation.

Thu, 12/05/2013 - 11:44 | 4217623 RSloane
RSloane's picture

Forgive the bad analogy but its like this: I have a factory that produces widgets. Very few people can either afford to buy or choose to buy my widgets. However, in order to keep investors I keep making widgets and keep stacking them in a drawer because even though I can't sell them faster than I produce them, each widget is considered an asset. If I want to look like my business is healthy, I keep making widgets because I can print their value in my + ledger even though their existence is financially useless in terms of sales.

Although GM produces far more cars than it can sell, as long as it keeps producing them their books look good in terms of their cars in their inventory are considered assets. At some point GM will have no more room to stash their stock and will have to begin selling more cars for less profit. Eventually they will sell fewer and fewer cars for less and less profit, and presto! we revisit the beginning of the great recession [which we never climbed out of to begin with].

 

Thu, 12/05/2013 - 12:22 | 4217738 gmrpeabody
gmrpeabody's picture

OT... Kyle Bass went long GM.

I am still chewing on that.

(or maybe it's not off topic..., maybe it is the topic)

Thu, 12/05/2013 - 12:29 | 4217787 Richard III
Richard III's picture

Aye, verily - Mr. Bass also went long a pallet of nickels. Indeed, how doth that trade behave since ?

Thu, 12/05/2013 - 12:25 | 4217768 PT
PT's picture

You see, at the end of the Monopoly game, the winner has to stop playing too.  He might have the best properties, the most houses and hotels, he might even own the entire board.  But he has to stop playing too.  Just like everyone else.

Thu, 12/05/2013 - 12:39 | 4217812 PT
PT's picture

The trouble is, even though we know the monetary system has been totally corrupted, we still give way too much "respect" to money.  We have a money problem.  It is an imaginary problem.  We built stuff, therefore we can afford to build stuff.  We have excess unemployed people, therefore we could potentially build heaps more stuff.  Now all this stuff sits around doing nothing, gradually deteriorating and benefitting no-one.  Why?  Because to sell it cheap would destroy future demand - which will never exist anyway because no-one has any money.  Despite people working their guts out all week and producing stuff, they still "don't deserve" to have all this stuff that has been built ... because of some kind of mis-match in the pricing system - which is all imaginary bullshit anyway.

We built it - we can afford to build it.  We got unemployed people?  We can build more stuff.  No-one can afford to buy it?  Your imaginary bullshit pricing mechanism is broken but causing real damage in the real world.  Someone will be paid to destroy stuff when it becomes too cumbersome.  Someone else will say, "There is no better way."

Someone pours milk down the drain because of a power failure preventing the refrigerators from working.  Someone else starves because they can't afford to buy milk.  Time to think what really matters. 

Thu, 12/05/2013 - 12:41 | 4217820 NotApplicable
NotApplicable's picture

From what I've read here, this also describes every producer in gov-funded China to a "T."

It's all about keeping up the facade by hooking up to the free money system.

In other words, demand is no longer the driver for production.

To call this "hoarding" is to confuse cause and effect.

Thu, 12/05/2013 - 12:57 | 4217878 RSloane
RSloane's picture

Exactly. This is not about supply and demand. This is about supply being generated because of how it is accounted for without regard to demand.

Thu, 12/05/2013 - 22:52 | 4220173 PT
PT's picture

Business became so much easier once we stopped depending on customers ...

Thu, 12/05/2013 - 13:16 | 4217983 ParkAveFlasher
ParkAveFlasher's picture

There is a feedback loop here that blurs cause and effect.  You can hoard money / access to financing by overproducing and/or overbuying, which begets more of the same.

Thu, 12/05/2013 - 13:30 | 4218044 Clark Bent
Clark Bent's picture

Perhaps it also reflects the malinvestment typified by a sclerotic overregulated and overtaxed economy. If we had anything like a free market, we would not be stacking up unaffordable solar panels and windmills (ironic how ironic that is, see Miguel Cervantes on false dragons) but rather sypplying more useful products like a way to get homeowners out of their under-water mortgages. 

Thu, 12/05/2013 - 15:45 | 4218707 MachoMan
MachoMan's picture

I see this sort of response quite a bit...  however, have you stopped to consider that the free market could look exactly like our present economy?

Thu, 12/05/2013 - 14:44 | 4218444 SDShack
SDShack's picture

You need to take it further RSloane. Businesses stuff the supply chain to pad their books like you say. Then when the inevitable recession hits, they cut production, cut employees and liquidate excess inventory as the buffer for the lack of production. This also pads their books in the recession. Winning on all fronts! MOAR!

Thu, 12/05/2013 - 15:49 | 4218720 MachoMan
MachoMan's picture

Further, if you can outlast your competitors, then you might be able to consolidate into some more "growth" and "return."  (especially when the FDIC sells you a bank on the cheap).

Thu, 12/05/2013 - 11:46 | 4217625 ParkAveFlasher
ParkAveFlasher's picture

Channel-stuffing is hoarding.  Manufacturers effectively lock in the lower rates for labor, materials, energy, etc. by overproducing and then selling the non-currently-demanded product into independent distributors, retailers, etc.  Manufacturers thus hoard resources and can possibly beat competitors by taking future resources off the table. 

It's the same problem with all credit booms in which you can't cool the machines down for a second (think I Love Lucy when her and Ethel work the chocolate factory conveyor belt).  You can't really predict what the forward demand will be but if nothing but crap is offered, guess what, nothing but crap will be consumed.  Get ready for a new era in cheesy sweaters, etc.

Thu, 12/05/2013 - 11:36 | 4217601 DeadFred
DeadFred's picture

Such negativity from everyone! Look at the bight side, when things turn seriously south all this inventory will keep the looters happy for days and days.

Thu, 12/05/2013 - 11:53 | 4217661 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

when things turn seriously south all this inventory will keep the looters happy for days and days.

...and the more inventory looted, the bigger the writeoff. A win-win all around!

Thu, 12/05/2013 - 12:54 | 4217866 WillyGroper
WillyGroper's picture

Don't count out the groath in insurance premiums.

Thu, 12/05/2013 - 12:32 | 4217793 Richard III
Richard III's picture

"Always Look on the Bright Side of Life !"

-- The Life of Brian, 1979.

Thu, 12/05/2013 - 11:43 | 4217620 Winston Churchill
Winston Churchill's picture

Just as useful as a goitre.

Now there growth you can believe in.

 

Thu, 12/05/2013 - 12:18 | 4217727 SRVDisciple
SRVDisciple's picture

I heard Billy Idol as I read your post. "With a Rebel Yell, Buy Moar Moar Mo-o-ar!"

Thu, 12/05/2013 - 11:27 | 4217573 Pooper Popper
Pooper Popper's picture

What a Throne of Lies!

Thu, 12/05/2013 - 12:42 | 4217828 BandGap
BandGap's picture

As the Ten Year Note creeps towards 2.9%.....

Thu, 12/05/2013 - 11:26 | 4217574 Dr. Engali
Dr. Engali's picture

How long does it take these geniuses to figure out that nobody has any money?

Thu, 12/05/2013 - 11:35 | 4217599 RSloane
RSloane's picture

Right up until the time someone burns down the genius's home.

Thu, 12/05/2013 - 12:26 | 4217771 krispkritter
krispkritter's picture

Or the rope snaps tight.

Thu, 12/05/2013 - 13:00 | 4217890 alangreedspank
alangreedspank's picture

We have an infinite supply of money. It's wealth that's starting to run scarce...

Thu, 12/05/2013 - 13:38 | 4218067 Clark Bent
Clark Bent's picture

See Obamacare. The geniuses think it entirely possible that millions of families can pay three times their usual (employer paid) health insurance premiums for $12,000 deductible plans. Maybe they'll take it out of their caviar budgets or the debt service on their Gulfstreams. Socialism always posits that the problem is not material scarcity, but mere unexplained stinginess. To a leftist, there is always plenty of money for everything imaginable, we just need to get the hoarders to release it into the economy. After all, we are the "richest country in the world." Watch how often they repeate that ridiculous phrase as though it justifies their failure to comprehend reality. 

Thu, 12/05/2013 - 11:28 | 4217579 Pooper Popper
Pooper Popper's picture

Urge to kill rising   fading,fading,,,,,RISING!!!!!!!

Homer Simpson

Thu, 12/05/2013 - 11:31 | 4217592 gjp
gjp's picture

As good a reason as any other to sell more gold and BTFATH.  That, and today ends in 'day'.

What makes me curious is the anomaly of the odd sudden rise in gold, like yesterday?  Just a momentary loss of control, or intended to make it still look like a free market?  And now back to your regular programming ....

Thu, 12/05/2013 - 11:36 | 4217600 Byte Me
Byte Me's picture

Got the SOTUS re-elected didn't it?

What's not to like?                   Oh                    how could I have missed it.

Thu, 12/05/2013 - 11:38 | 4217606 ShrNfr
ShrNfr's picture

Inventory is a wasting asset with a cost of carry. "Nuff said.

Thu, 12/05/2013 - 12:16 | 4217609 Stuck on Zero
Stuck on Zero's picture

Can't the Fed buy the excess inventory?  All you have to do is call it an "unperforming asset," mark it to retail, and tell Ben to buy it.  A parking lot full of SUVs is worth a heck of a lot more than Treasury Notes or mortgages.

 

 

Thu, 12/05/2013 - 12:52 | 4217851 PT
PT's picture

I was hoping I could "help" them with their the excess inventory problem.  In particular, I was hoping I could charge them a "storage fee" while I allowed them to "store" one of the excess autos at my place.  I'd have to drive it about each day of course, just to keep it in peak condition - make sure battery doesn't go flat, seals are bedded properly etc - I may have to charge them a "maintenance fee" as well, just to make sure the inventory stays in tip-top condition.  Needless to say, the vehicle will depreciate a little bit, as I add kms to its odo but it was going to depreciate anyway due to it getting old and next year's model looking different... I think you should offer your services too.  For a "small" fee, we could all sort out this "excess inventory" problem ... 

Thu, 12/05/2013 - 11:39 | 4217611 Byte Me
Byte Me's picture

You didn't make that inventory, someone else did.

90% of problem right there.

Thu, 12/05/2013 - 11:48 | 4217643 Hal n back
Hal n back's picture

another rather subtle reason to build inventory--if your background is as an accoutant--its called overhead absorption. Th emore you make inventory the more overhead you capitalize and put into inventory value. Prope up margins and profits even though as pointed out ther is a cost to carry--a lot of the cost to carry is fixed-building and HLP--the variable cost is cost of money which thanks to fed...

 

on the other hand, building inventories keeps people wprking--somethign this administration woudl do for obvious reasons--keep the auto union employees working

in 40 days we start hearing abuot shutdowns to manage inventories-just abut the tiem they start debt ceilign discussions at which thime the economy wil be too fragike to cust spending. Although with 1 trillion deficits , the deficit spending amounts to 7% of GDP already. So without deficit spending we are in deep shit--with it we are in less depp shit short term.

Then we sink into it.

Thu, 12/05/2013 - 12:08 | 4217695 ParkAveFlasher
ParkAveFlasher's picture

Yes, and also (and we saw this in Weimar) is that in order to build inventory, you must increase industrial capacity for more product/less time and you do that by building new tools to run side-by-side in order to satisfy targeted "demand".  Once the tools are built - molds, etc - they are durable for quite a long time and require comparatively low cost to modify / customize.

Thu, 12/05/2013 - 13:42 | 4218087 Clark Bent
Clark Bent's picture

And then you can start building Panzers and make your economic failures your neighbor's problem by invading them and taking their stuff. 

Thu, 12/05/2013 - 15:10 | 4218562 ParkAveFlasher
ParkAveFlasher's picture

Precisely.  Rather ironically, the same hoppered machines that fill tins of women's facial powder can probably be refitted to fill mortar shells.

Thu, 12/05/2013 - 11:52 | 4217657 Lordflin
Lordflin's picture

There is a certain consistancy here...

No one looking for work equals zero unemployment, why shouldn't no one buying goods maximize GDP?

Thu, 12/05/2013 - 12:13 | 4217697 ejmoosa
ejmoosa's picture

I've been to some retailers recently, and the merchandise is not on their floors.  So where is it hiding?  

Target is a case in point.  Six years ago the shelves and racks were fully stocked.  I am certain that they have at least 40% less merchandise on the floor today.

 

Thu, 12/05/2013 - 12:16 | 4217717 booboo
booboo's picture

Most Exxxxcelent. Moar fire sales when reality bitch slaps "amarca"

Thu, 12/05/2013 - 12:15 | 4217718 q99x2
q99x2's picture

GDP...What disgusting animals people are during the end times of civilization.

Thu, 12/05/2013 - 12:29 | 4217784 krispkritter
krispkritter's picture

I'm more than happy to increase my stores and preps from clearance merchandise the retailers are dumping every month to make room for yet more stuff.  Just wish there was an ammo glut and clearance pricing on it.  Wait until they try and clear the shelves after Christmas sales fall through the floor. As far as I'm concerned, even gold and silver are on sale.

Thu, 12/05/2013 - 12:38 | 4217810 TrustWho
TrustWho's picture

Building Inventory is like Building Debt.......Fuck Bernanke

Thu, 12/05/2013 - 12:58 | 4217876 PT
PT's picture

No.  Gimme excess inventory any day of the week.  Just don't let the bastards destroy it when they can't get rid of it.  Someone's labour built it.  Someone can buy it.  Auction it you bastards.

Thu, 12/05/2013 - 17:16 | 4219043 TrustWho
TrustWho's picture

As excess inventory reduces future production, excess debt ($17+ trillion, and household debt and corporate debt and unfunded liabilities that many citizens view as THEIR savings) reduces future consumption.

In other words, future economic activity will be reduced below trend.

Thu, 12/05/2013 - 23:11 | 4220215 PT
PT's picture

I don't care about future economic activity either.  Just give me production, and when we produce too much, auction it off so people actually use what has been produced.  Say we produce too many cars, houses and clothes and then suddenly everyone has enough and only needs to work four hours per week so they can have enough money to buy food.  Is that really a problem?  That's only a problem for idiots who can't handle free time, accountants who desperately want everything to add up properly and greedy fucks who can't possibly be happy unless everyone is slaving away for 60 hours per week for their benefit.

Some idiot will produce too much and then destroy the excess so they won't lose "future customers" who will never exist anyway because the prices are too high.  The rest of us will be told to "reduce, re-use, recycle" because we can't afford to ruin our precious environment.  Do you see how this works?

Thu, 12/05/2013 - 12:45 | 4217834 adr
adr's picture

Inventory is an asset instead of a liability now. Then over the next few years you can deduct the depreciated value of the inventory on your business taxes, effectively paying for the inventory itself over time.

Eventually you will have written off enough of the value that you can fire sale the years old inventory to raise cash to do it all over again.

This goes on and on with every publicly traded bullshit company. As long as thier stock keeps going up, they can continue the bullshit forever. 

I'd say corporations only sell 20% of what they claim to real end consumers. The rest is accounting bullshit.

Thu, 12/05/2013 - 16:05 | 4218786 MachoMan
MachoMan's picture

If you can constantly fire sale your production and still turn a profit, then power to you...

Thu, 12/05/2013 - 12:54 | 4217858 madbraz
madbraz's picture

Like they are not making this inventory number up to make it look like what they are doing is working...

 

This lie of an inventory number will certainly be revised by half or more a few years from now.

Thu, 12/05/2013 - 12:55 | 4217867 starman
starman's picture

Debt is the sheeplys best friend! It helps your credit score the more you owe the higher your score! Sure little sheeplys.

Thu, 12/05/2013 - 14:28 | 4218366 joego1
joego1's picture

It reminds me of a hamster I had once. I used to stuff it's cheeks like that with food until it got smashed behind the dresser one day. Found it about a year latter- cheeks still full.

Thu, 12/05/2013 - 14:45 | 4218455 Rathmullan
Rathmullan's picture

inventory: the keynesian/monetarist eltists' version of exposure to "physicals"

Thu, 12/05/2013 - 15:21 | 4218625 moneybots
moneybots's picture

"The result is that of the $534 billion rise in nominal GDP in the past year, a whopping 56% of this is due to nothing else but inventory hoarding."

 

Whatever happened to that just in time meme?

 


Fri, 12/06/2013 - 11:01 | 4221242 paintman
paintman's picture

This is  a cycle that has gone on for many years. The manufacturer announces an upcoming price increase, weighted average of 5% but in reality it is 6.5%.  They have normal volume discounts that offer another 8 to 10%. It is near year-end, and their sales are below forecasts, so they offer another 10%, plus dated payment options or greater cash payment discounts. What would you do?

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