"In 30 years, I’ve Never Seen Anything Like This" - Inventory Pileup Sounds Alarm

“In 30 years, I’ve never seen anything like this”: CEO of warehouse operator Pacific Mountain Logistics.

Sales at merchant wholesalers (except manufacturers’ sales branches and offices) fell 1% in December 2018, compared to November, to $497.2 billion on a seasonally adjusted basis, and inched up only 1% compared to December 2017, according to the Census Bureau estimates this morning.

But inventories at these wholesalers rose 1.1% from November and jumped 7.3% from December 2017, to $661.8 billion. Over the two-year period through December, inventories have risen 11%. This includes inventories of durable and non-durable goods (we’ll look at them separately in a moment):

This surge of inventories on soft sales caused the inventory-to-sales ratio to spike to 1.33, up from 1.30 in November and up from 1.25 a year earlier.

This is a familiar pattern. As inventories are piling up, and as inventory carrying-costs rise, companies eventually react: They whittle down their inventories by cutting orders. As we have seen in 2015 and 2016, this hammers the goods-based sectors of the economy. In 2016, it dragged GDP growth down to just 1.6%, the worst growth rate since the Great Recession. The overall economy was barely kept out of a recession by the service sector.

The transportation sector tracked this perfectly as it fell into a steep recession in 2015 and 2016. Now a similar pattern is starting to form: A surging inventory-to-sales ratio as inventories are piling up, while shipment volume of goods, as tracked by the Cass Freight Index, have started to decline on a year-over-year basis.

The Cass Freight Index covers consumer and industrial goods shipped by all modes of transportation — truck, rail, barge, and air — but does not cover commodities such as grains.

I overlaid the two data sets: The Cass Freight Index for Shipments, expressed as percent change from the same month a year earlier (columns, left scale), and the inventory-to-sales ratio (green line, right scale):

Non-durable goods not helpful.

Sales of non-durable goods — food, gasoline, apparel, agricultural products, etc. – at wholesalers fell 1.4% year-over-year in December, even as inventories ticked up 2.2% to $251.2 billion.

The standout here is the category of petroleum and petroleum-products inventories. Inventories and sales are valued in dollars, and the sharp drop in crude oil prices since August caused the dollar amount of petroleum and petroleum-products inventories to drop 12% year-over-year in December. Between September and December, inventories plunged 21% in dollar terms to $20.4 billion.

The problem is in Durable Goods Inventories

Sales of durable goods by wholesalers ticked up 3.5% year-over-year in December to $245.6 billion. But inventories of durable goods at wholesalers surged 10.6%, to $410 billion – the steepest increase since 2012, the period of inventory restocking coming out of the Great Recession:

Here are some standout categories, in terms of percent change in December 2018, compared to December 2017. Note the three categories with double-digit jumps, two of them relating to the construction sector:

  • Furniture & Home Furnishings: +8.9%

  • Motor Vehicle & Motor Vehicle Parts & Supplies: 7.3%

  • Machinery, Equipment, & Supplies: 12.7%

  • Hardware, Plumbing & Heating Equipment & Supplies: 12.1%

  • Lumber & Other Construction Materials: 14.9%

  • Household Appliances & Electrical and Electronic Goods: 6.5%.

The chart below compares the year-over-year percent change in durable goods inventories at wholesalers to the year-over-year percent change in the Cass Shipments Index. Note the turning point in shipments late last year. Inventories follow with a lag.

This situation of ballooning inventories on soft sales is showing up in the warehousing industry – and it’s getting blamed on companies trying to front-run trade tariffs. The surge of imports ahead of the potential tariffs – coming on top of the usual increase of inventories ahead of the Chinese Lunar New Year – has left warehouses and shipping terminals in Southern California “overstuffed and distribution networks jammed,” the Wall Street Journal reported.

“That stacked-up inventory is straining logistics capacity around the neighboring ports of Los Angeles and Long Beach, which together comprise the biggest U.S. trans-Pacific gateway,” the WSJ. It quoted BJ Patterson, CEO of warehouse operator Pacific Mountain Logistics in San Bernardino: “In 30 years, I’ve never seen anything like this,” he said.

Increasing inventories is counted as a business investment and is added to GDP growth; This is what has been happening much of last year. But conversely, the inevitable decline in inventories will be subtracted from GDP growth.

Apocalypse not now

The goods-based sectors comprise the smaller part of the economy. The services sectors dominate. The biggest of them are healthcare, finance, and housing (rents are services). In the US, you cannot get an overall recession with just the goods-based sector slowing down, as we have seen in 2016. It will pull down overall growth in the economy but won’t push the US into a recession. For a recession to happen in the US, the services sectors need to approach the zero-growth line, while the goods sectors are in decline – and that is not yet in sight.

Something has to give. Read… What Trucking & Freight Just Said About the Goods-Based Economy in the US

Source: Click Here

The ISDA & G47 Marketplace have presented solutions to not only survive, but to THRIVE in an economic downturn. We are working tirelessly to stimulate a culture of Socially Responsible Consumption via a "Toll-Free Road" with Silver as our medium of exchange!

To learn more, contact us, and schedule a Strategic Philanthropist to explain to you the pure AWESOMENESS of our Cooperative Procurement Opportunities...they will be more than enthusiastic to "Show You the CPO!"

#Economics #Business #Commercial #StockMarkets #Money

Featured Posts
Recent Posts
Search By Tags
No tags yet.
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square

S.D.G. | © 2017 by International Silver Dollar Association ~  www.ISDASilver.org

All Rights Reserved.  All Wrongs Reversed.




Back to Top

ICFMS Logo Vertical_edited.png

IMPORTANT MESSAGE: ISDASilver.org is a website owned and operated by the International Silver Dollar Association an Ecclesiastical State Integrated Auxiliary Trust operating by rule of necessity as an Unincorporated Association (hereinafter, “ISDA”).  We are a Faith Based Organization qualified under Title 26 U.S. Code § 508c(1)a Non-Assumptive 28 U.S. Code § 1746 (1).  By accessing the website and any pages thereof, you agree to  the binding terms of use of all ISDA Policies & Agreements, as each may be amended from time to time.  ISDA is not a registered broker, dealer, investment adviser, investment manager or registered funding portal.  Any and all private offerings on this site are available without contravention of Rule 506(b) of Regulation D, as “safe harbor” under Section 4(a)(2) of the Securities Act, and pursuant to the iCovestor Relationship & Royalty Sharing Covenant made in acquiescence at the time of any like kind exchange for any goods, services, and/or subscription made in the medium and measurement of silver in the form of U.S. Treasury Minted American Silver Eagle Coined money (Measured Digitally and/or Physically exchanged thereof as an Intentional Community Opportunity (-ies), a.k.a. “ICO” or "ICOs").

The information contained on this site is provided for informational purposes as a service to the public as part of the mission of the ISDA and does not constitute legal or tax advice.  Legal Information is not the same as Legal Advice.  Some of the information on this site and corresponding emails provide information about law designed to help users safely cope with their own Faith Based Organization needs.   The application of law varies depending on many circumstances. The laws of every state are in constant change, and although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer if you want professional assurance that this educational information, and your interpretation of it, is appropriate to your particular situation.


ISDA Website Entry & Use Agreement & Public Notice: CLICK HERE