The scale of the inventory bloat in the latter half of 2015 was perplexing. By any reasonable standard, it doesn’t make any sense that businesses would be so bold as to almost ignore sales (and this applies at each level of the supply chain). The only way that it could have possibly occurred was businesses setting aside what was happening in coincident time in the belief that it was a temporary deviation from much, much better times just ahead. In other words, a significant portion of the “goods economy” must have been operating on the mainstream, orthodox narrative.
For anyone outside, it seems almost preposterous but such is the operation of complex enterprises. How does one go about forward ordering? The Blue Chip Economic Survey is still present and accessed widely by businesses along with the constant media presence of policymakers and economists (redundant) never deviating from their promises that any sales problem would be “transitory.” The message was to set aside, mostly, the current sales environment and order for that much better future the Establishment Survey and unemployment rate assured was right there. After six years of no recovery, it was too tantalizing a prospect.
That imbalance, however, contained finite limitations. As much as business wanted and needed to believe in the fairy tale, they could only do so for so long on belief and hope alone. Reality had to converge at some point; either the sales would show up as promised, truly strong and not economists’ downgraded and reduced standards of claiming any positive number as strong, or the whole thing would have to be scaled back, retail to wholesale to manufacturing and beyond. Recession.
My instinct has been that the Christmas season would be the final chance for economists to deliver, the last straw for the economy to actually live up to ordered expectations. It didn’t; retail sales published this morning were slightly better in December than November but that was just monthly variation rather than meaningful improvement. Worse, given how bad November really was, slight advance was really none at all. The entire Christmas season (including autos!) was a total washout.
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