What Does It All Mean? (Updated)

I’m still trying to puzzle out this news item. Apparently, inventories are higher and December sales lower than were expected:

Jan. 14 (Bloomberg) — Inventories in the U.S. rose more than forecast in November as companies tried to keep up with a jump in sales.

The 0.4 percent increase in stockpiles matched the previous month’s gain, marking the first back-to-back increase in more than a year, figures from the Commerce Department showed today in Washington. Sales advanced 2 percent, the most in two years.

A record reduction in stockpiles during the first nine months of last year means companies may pick up the pace of orders and production as demand improves. Gains in manufacturing, which accounts for about 12 percent of the economy, will help sustain the expansion in early 2010.

“Manufacturing output will need to ramp up further in coming months or inventories will soon be too lean to meet demand,” Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania, said before the report.

A report earlier today from the Commerce Department showed sales at U.S. retailers unexpectedly fell in December following a gain the prior month that was larger than previously estimated. The 0.3 percent decrease came after a 1.8 percent jump the prior month. The government last month calculated the November gain at 1.3 percent.

The articles appears to be putting as happy a face on it as possible but doesn’t increasing inventories and declining retail sales mean a reduced likelihood of companies taking on employees? A recovery that’s petering out? That sounds more consistent with a double-dip recession than with a recovery.


Here’s a link to the Census Bureau’s report. Basically, it found retail sales falling relative to November 2009 and rising relative to December 2008. I don’t see that this constitutes evidence for a robust recovery well under way.

5 comments… add one
  • Its possible. I’ve been of the mind that calling the recession over is premature. With various gov’t programs ending that provided the boost to GDP we recently saw, what will keep GDP growth going? Another magic pony?

  • steve Link

    I would interpret this as a continued lack of demand. Consumers still have debt and many are unemployed and underemployed. We started this recession with people carrying record levels of debt, and that was before housing prices hit bottom. No way we were going to see a fast recovery. I suspect we are not seeing a lot of businesses hiring and investing as they would be pushing on a string. There is no one, on the domestic side, able or willing to buy. I didnt look at last months exports, but maybe there is some hope there.


  • I am reminded of the discussions I had with economists a few years ago who were bemoaning our low savings rate. I pointed out that more savings would necessarily mean a decline in retail sales and, given the way our economy had been restructuring itself, that would necessitate a substantial dislocation. Looks like the dislocation is well under way.

  • steve Link

    Agreed. This is why I am puzzled when Drew says it is health care or taxes that is holding people back. It may be a minor factor for some, but our history shows that if the demand is there, people will fulfill it.


  • steve,

    Drew’s comments are in the context of employment/unemployment. In that case firms are going to be less likely to hire on new workers if they think there is a good chance that said workers will suddenly become much more expensive.

    Naturally the unemployed are going to reduce their demand/consumption. Further, others might also reduce consumption by a smaller amount with higher unemployment signalling that job security has just gone down (i.e. you could be next to lose your job kind of thinking). Also, firms facing declining business might cut back on over time and bonuses that would also reduce consumption/demand.

    Also, if you are fortunate enough to have a goodly amount of money you might cut back today if all these nice and wonderful new programs are going to result in higher taxes in the future. You might decide to save today so that you can have slightly higher income in the future.

    So it isn’t necessarily a direct connection, but there is a connection none-the-less.

    It may be a minor factor for some, but our history shows that if the demand is there, people will fulfill it.

    I find it rather interesting that you’d, essentially, claim Say’s Law to be true.

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