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GDP Deja Vu Stunner: Over Half Of US Growth In The Past Year Is From Inventory Accumulation
Back in December 2013, when everyone was expecting a 3% GDP print for Q1, we did a simple analysis concluding that "Inventory Hoarding Accounts For Nearly 60% Of GDP Increase In Past Year." We stated that this "hollow growth", which is merely producers pulling demand from the future courtesy of cheap credit and assuming the inventory will be sold off in ordinary course of business without bottom-line slamming liquidations or dumping, and which further assumes a healthy US consumer and global economy, is a flashing red flag for the future of US economic growth. In fact, we were one of the very few who warned that Q1 GDP would be a disaster: "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."
This is precisely what happened in Q1, however it was blamed on the "harsh weather."
Alas, following today's "spectacular" 4.0% GDP print following the predicted plunge in the US economy in Q1, we can again conclude that not only has nothing changed, but what we warned in Q4 of 2013 is about to happen all over again, and the inventory overhang (which incidentally was estiamted by the BEA and will certainly be revised lower next month) is about to slam future US growth.
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). Something to note: companies are traditionally loath to liquidate inventories unless the economy is clearly in a depressionary collapse as happened in late 2008 early 2009, when inventory dumping was the main reason why GDP remained flat if not negative even as other GDP components rebounded. As such, it is always the last component of GDP to go, and when it does watch out below.
And, as we showed last time, where the scramble to accumulate inventory in hopes that it will be sold, profitably, sooner or later to buyers either domestic or foreign, is most visible, is in the data from the past 4 quarters, or the trailing year starting in Q2 2013 and ending with the just released revised Q2 2014 number. The result is that of the $675 billion rise in nominal GDP in the past year, a whopping 52%, or over half, is due to nothing else but inventory hoarding.
Once again, enjoy the sugar high that inventory accumulation always generates in the current quarter. Just don't expect it to last.
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If silver counts, I resemble that remark.
I am part of the problem, and proud of it.
But thats 'dead' money, while inventory is......
Oh shit.
Inventory Accumulation
Cool more hookers and blow!
Or is that just Italy
Leave it to they Tylers and ZH doomers to poop in the punch bowl. Never inviting any of you to my FEMA camp reunion party.
Next up on the agenda, inventory destruction in order to fight "deflation."
We're gonna need a bigger Hoover.
Yes, America getting 'Stuffed' but good...
lets ghost all china's citys including the smog and red rivers.
NotApplicable: +infinity
Valuation = Showroom price X inventory. So they can't sell anything cheap, otherwise valuations and GDP figures collapse. Excess inventory will be destroyed.
No way can we give the stuff away becoz ..., becoz ... that's COMMUNISM!!! Capitalists make stuff and don't sell it unless the price is high enough becoz you didn't earn it so if we can't sell it then we have to destroy it plus its all too old now and unsafe and broken. And don't forget to recycle your plastic bags and don't use incandescent light bulbs becoz it is wasteful and bad for the environment...
No great insight on my part. Just describing what has already happened in the housing market.
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Will you be supplying the "Victory Gin", or is it BYOB?
There will be victory gin and toilet wine made from Kool-Aid
AW....you was enjoyin the punch huh?
If you subtract inflation from the GDP numbers (Shadowstats numbers, not the official lies) The GDP is then NEGATIVE!
From that perspective it might be seen as rational behaviour to add to real goods, and evade the Feds irrational paper producing.
Exactly so - inventory stuffing precedes loss of faith in the currency (due to excessive monetization/printing)... Hyperinflation is the light at the end of the tunnel, on a full-sized locomotive preparing to steamroll it's way through the USA.
Gee, maybe that's why I'm seeing Thanksgiving Day sales in July.
My local stores started back-to-school the last week in June. Gotta make the numbers for the quarter!
Ugh. Walmart and Staples were stacked to the gills with "Back to School" crap when Summer was barely two weeks old.
"Shop for Christmas!" is going to start in June before we know it.
I was listening to the radio and the hosts were briefly discussing the phenomenon of celebrating "Half-Christmas," i.e., June 30th, the halfway point to traditional Christmas.
Apparently people do this, and they exchange gifts and cards as part of it.
This will certainly help GDP.
They already are on the cable shopping networks. I saw a "Christmas in July" program when flipping through the channels. Selling christmas trees, lights, decorations, and other junk. I shit you not...
Bull markets end on "good" news. Many feel a Fed Rate hike would be a good thing. Does Mrs. Yellen have her matador outfit on today?
I'll bet she has the upper portion of her anatomy, aligned in an attitude of rectal defilation,
...as usual.
That's Mr. Yellen to you young man!
How about Hookers and Blow!! Where does that fall??
Entertainment expense.
Kids these days. What do they teach;)
SEC Regulatory Expenses......
Isn't that an expense for Presidential security?
Skanks and blow, definitely the other half of GDP boost.
No problem, I bet the US can sell some of their crap to those upstart Russians...Doh!
Rate hikes, what a laff...we're in a fukkin disguised depression...even that old cow ole yeller aint dumb enough to raise rates
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No worries, COPS will save us, rest assured.
Tyler, how does this compare with quarters pre 2008? Was inventory accumulation the norm then too?
Symptomatic in all the major recessions I can remember going back,more years than I care
to state.Always a biz killer because its on the BS at cost , then you have to
fire sell it at 10cts on the dollar.
Its not supposed to happen these days with JIT production and distribution methods.
A big red flag.
Well, agreed. That used to be a red flag.
But as a % of GDP, as explanation of GDP, that may have always been so? It would be good to see what % of GDP was explained by inventory build in pre 2008 years.
Re read my comment.
Its not comparable, figures wise, because it should not be happening.
JIT methods says this should be impossible, but here we are.
Classically, this is the signal for mass lay off's, which is what we are now starting to see.
I expected them sooner, right after Xmas, if you read my comments from back then.
Reality was delayed, but now is finally asserting itself.
This GDP print is bullish(it), and will not change that reality one smidgeon.
H2 is going to be very exciting, in a nasty way..
Inventory change is a "leading" (as opposed to lagging) economic indicator. An increase in inventories suggests less need for future production and therefore oncoming recession, just as the article suggests. Standard economic theory. There are other leading economic indicators, e.g. housing permits, and an "index of leading economic indicators" that aggregates them. I would no longer trust any government statistical aggregation.
GDP... the most bullshit statistic ever strikes again!
I can see why you chose that one, but CPI and Unemployment Rate are right up there.
Do you really believe this "inventory" number? Could this just be a goal-seek variable to reach the desired final GDP number?
Who cares anyway, when the crisis hits everything will be lumped into one horrible quarter, -10% GDP, much like in 2008.
Maybe they are trying to prepare for inflation - buy now while it's "cheap" sell later.
But, probably not. I've never seen so many sales in the middle of July.
You mean other than new single family homes. :)
At least I have Sharknado 2 to look forward to tonight.
Sounds like the inventory build up is in part with the inability to sell things. When you replace fulltime with benefit jobs, with part time no benefit jobs, the people can't buy their 4th TV or 3rd car or that brand new washer and dryer. Or maybe I'm wrong and perhaps the build in inventory is anticipation for all the wealthy illegals come over the boarder.
"My company may have no revenue but I've built 20 000 widgets and the price tag on them sez sixty five thousand dollars! Errr, well I will build the 20 000 widgets, as soon as the parts arrive. Hey! I'm ready to go IPO!"
Looks like Kevin Henry is going to be busy after the Fed. announcement.
US 10Y Yield 2.543 2.462 2.545 2.458 +0.081 +3.30% 16:26:06
Pull your inventory from the air
And wave it like you just DON'T CARE
those corn fields in Nebraska are filling up fast with Fords and GMs - even a few imports
build it and they will come. hey honey there's a bunch of new chevys parked out in back of the house.
Sweet, this means at some point [aka next quarter] all of this inventory will be fire-saled thus boosting GDP even more! Woot!
Unfortunately, no. As soon as they sell stuff cheap, valuations collapse, GDP figures collapse ...
So instead they're going to sneak it all out the back door and destroy it. You need to get a job as a liquidator and ignore the "You have to destroy all this stuff" clause that will appear on your contract.
When the phony inventory valuations exceeds what consumers can actually afford to pay in the real world, and those phony valuations are used to juice company net worth and GDP figures, weerf hucked.
Damn it, Donnie. Why do you gotta get so smart on us?
[PS I still think if they lower the price of all of that delicious channel stuffing, we'll sell more stuff and BINGO! No more recession.]
[PPS I just asked Krugman and he agrees.]
mastersnark: The peasants will be ripped off a thousand times but the banksters must be paid. The inventory is needed for the phoney valuations to justify the lending and offset the debt. The banking system is a pyramid scheme for recruiting debt slaves.
I like to believe that there are cheeeeap goodies, even now, for those who know how to work the system. But you have to be in the right position, know the right people, and know ... something else that I still don't know.
http://wallstreetexaminer.com/2014/07/heres-the-chart-that-shows-why-the-housing-market-is-sick/
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remember when rumsfeld said a trillion was missing from DOD? well he didn't necessarily mean money, he could have also meant equipment. so if the pentagon loses a trillion worth of equipment, there goes the inventory problem, considering most private business is selling products to usg. uncle deepsixes the stuff, end of inventory overhang!
Rehypothecate the inventories so everyone can buy homes. Owning stocks aren't nearly as fun.
How Fracking Is Blowing Up Balance Sheets of Oil and Gas Companies
tick tock ..... tick tock
Inventory build marks (finally!) the end of hand to mouth operations that began in October 08 with the crash. Simply offsets the huge inventory drawdown in that period. A good sign for the economy.
Cost of recalls for GM will be lower when the cars and trucks never make it to a customer. GM is pumping out production like there's no tomorrow but customers willing to sign the 99yr lease are hard to find.
How many times did they count the inventory at GM to include it into GDP?
Holy shit! Here comes the second part of the W shaped depression that began in 2008. I bet we're going to see another 8% true GDP drop. Commodity prices should ease but we're going to see a new crop of layoffs over the next year. Ouch.
Hey, it's just Deja Vu.
Remember the recession of Nov/Dec 2007 that we weren't told about until Dec 2008?
Well, here's a story from that period:
"Recession fears grow as inventories swellBY EMILY KAISER - ANALYSIS
WASHINGTON Mon Nov 12, 2007
(Reuters) - Unsold goods are piling up in warehouses as the housing meltdown and soaring oil prices strain consumers, raising fears that already glum fourth-quarter growth prospects may tip toward recession.
Federal Reserve Chairman Ben Bernanke warned last week that economic growth would slow from the third quarter's surprisingly strong 3.9 percent annual rate. But recent data on inventories suggests the slowdown may be even more severe than the central bank has anticipated."
That slowdown turned into the worst economic event since the crash of '29.
This inventory recession won't be as bad as it was in 2008 as it's just inventories of Chinese tchotchkes.
In 2008 the inventories were pricier sub-prime mortgage backed securities.