Still More Inventory

The only piece of the GDP revision to note is that the BEA is still having great difficulty estimating inventory. That isn’t surprising since businesses in this area are behaving far different than any expectation, even factoring the difficulty of the “recovery” environment. That leaves instead only Janet Yellen’s continuous pleading about the surge in consumer spending that never seems to arrive; and now consumers are flushing even this weak consumption environment with revolving credit in a sign of further exhaustion.

In the preliminary release for Q3 GDP, the BEA estimated that businesses added another $62.2 billion in material, goods and finished products compared to an increase (repeatedly revised) of $127.5 billion in Q2 and $127.3 billion in Q1. Given the mechanics of GDP accounting, a smaller increase actually subtracts from the quarterly GDP rate, thus going from +$127.5 billion to +$62.2 billion amounted to a noticeable drag on the statistical view of the economy.

It would stand to reason that after continuous, historic accumulation of inventory that eventually the trend would break, so it seemed perfectly in line with especially the (severe) reduction in manufacturing (and transportation) volume and goods sales and revenue. The advance revision to Q3 GDP, however, has been forced more in line with observations elsewhere that yet again show a delay in inventory reversion. Instead, the GDP calculation of additional inventory was revised up from $62.2 billion to a still-enormous $100.6 billion; marking three consecutive quarters (for now) of more than $100 billion and six in a row greater than $88 billion. Inventory in the GDP figures has not actually subtracted/contracted since Q3 2011!

The last time inventory accumulated without such a break was between Q3 2003 and Q4 2007, suggesting almost perfectly the intentions of the traditional business cycle even in these unusual times. Further along those lines is the fact that despite almost historical levels of sustained inventory gains, scaled to GDP, the sales environment has continually softened to the point that contraction has been maintained in wholesale sales while the retail level has plunged to alarmingly flat(recessionary).