Manufacturers Sales, Inventory All Bad But BLS Says They Are Still Hiring

With the release of retail sales, the estimates for inventory across the whole supply chain are completed for December. The inventory-to-sales ratio for total business rose yet again to 1.39; the last time the series was that out of balance was May 2009, a ratio higher than what was registered in October 2008. The ratio for the manufacturing level surged to 1.38 from 1.35 in November, as sales declined quite sharply (by almost $7 billion SA). The inventory imbalance in retail was also the highest since May 2009. If jobs are truly the measure of economic growth through consumerism, they are truly absent here.

The inventory imbalance throughout 2015 was nothing like we have ever seen under similar circumstances of production volume and sales. In terms of manufacturing, this “manufacturing recession” already resembles in many important aspects the dot-com recession. It is entirely different in terms of inventory, though, which can only mean serious trouble.

In terms of just manufacturing alone, sales have fallen (on a seasonally-adjusted basis) for seventeen months and are down more than 8% since the July 2014 peak. The sales estimate for December was equivalent to November 2011, a stark appraisal that suggests also the scale of the contraction. On a cumulative CY/CY basis, total sales in 2015 were $258 billion less than 2014; $5.738 trillion vs. $5.996 trillion. It is inarguably a sustained and significant decline in manufacturing even if inventory continues to pile up.

By comparison, manufacturing sales fell by a little more than 10% before and during the dot-com recession, spanning only 14 months total peak to trough. Since inventory levels were also adjusting in the same direction then, that was the extent of the decline. By the middle of 2002, both sales and inventory were back on the cyclical upswing though very slowly at first (until housing mania kicked in).

Despite the similar magnitude and extent of the manufacturing recession so far when compared to the dot-com recession effects in the supply chain, the BLS instead estimates far different employment conditions. At cycle peak for manufacturing sales in September 2000, the employment statistics show 17.2 million manufacturing jobs. Because of the broad and sustained decline in manufacturing sales, manufacturing businesses, as you would expect, cut 1.4 million employees over those fourteen months.