11
01/10
Obamarket Special Update Part 2: Sales, Inventories, Not
by John Galt
January 10, 2010
You just have to love the advertisement for this product when it talks about President Obama and what his Chia planter:
“representing peace, hope & prosperity.”
With just about one year of the imperial reign of America’s first Leninst President the only peace we’ve found is inside our own nation if you don’t call terrorist attacks terrorism, refer to the unemployed and underemployed if you want to know about hope, but the prosperity part is spot on when you look at the insider, er, high frequency trading, er crooked Federal Reserve banks that have been allowed to use taxpayer dollars for their losses and investing them in the stock market while manipulating everything they can to insure there is no prospect of honest financial markets inside of these borders. Or maybe they were just talking about how Obama represents those things if you are a citizen of Communist China. Enough political ranting though as the Chia pet made me crack up when I sae the commercial on television and thought it was worthy of mentioning before I dissect the report ignored by most in the Bubblemedia on Friday but not by those in the bond markets. And now an unbiased review of the figures presented in my Caucasian Dialect (Thanks Mr. Reid, you’re a laugh riot a minute).
On Friday, January 8th the Commerce Department, via the Bureau of the Census released the monthly update for Monthly Wholesale Trade: Sales and Inventories which indicated the usual rah-rah kind of news after seasonal adjustments. However their own graph does not put a smiley face on the data:
That is their graph, untouched, without my sarcastic comments and without any indication that the inventory/sales ratio is on the increase which tells you one of if not two things:
1. Inventories are still being cut back due to the collapse in consumer demand.
2. Sales are still in the toilet on a year over year and especially when compared to 2006-2007 levels.
Alex, I’ll take 1 & 2 for $500. Ding, ding, ding, we have a winner.
With that out of the way, let us reflect first on the grand total of sales and inventory, non-seasonally adjusted in our first graph:
As you can see from the green line I’ve added to the chart above, from approximately November of 2008 through November of last year we have been mired in either a price decline or a lower quantity of sales for that period. Based on the PPI for finished goods, it is a safe assumption that it is the latter more so than the former as after the initial shocks from November 2008 to March 2009 wore off, wholesale prices for finished goods began to advance again:
The disturbing factor is that the inventory rebuild appears to have begun in some areas but the consumer is basically in hiding as they are so over leveraged still to this date and unfortunately experiencing a continuing decline in net earnings thus extending the period of time the average American will need to get out of debt.
I have selected four durable goods sectors and one non-durable (Grocery items) for comparison to the net total and for the sake of discussion, let’s check out the various sectors which I feel are an important reflection on whether or not this “recovery” is sustainable. First the much publicized auto sector:
Once again the auto sector inventories are starting to grow in anticipation of the much touted economic recovery and projected 4-5% GDP growth in Q4 09 and forward which most of us know is vapornomics at its best. The reality is that the inventory rebuild will sit on the lots most of 2010 and once again we will have to fork more taxpayer dollars over to the GSAE’s (Government Sponsored Automotive Enterprises) to keep them afloat for just a bit longer or at least through the election until the Committee of Central Economic Planning and Control figures out what the next 5 year plan shall be. In the particular chart above, you’ll note that I did not draw the horizontal line but we are once again at 2006 sales levels where will probably stay or drop slightly below in 2010.
The next chart is a direct reflection of the housing crash:
It does not take a rocket scientist to figure out that the deteriorating housing market is continuing to impact the furniture and home furnishings industry as wholesale sales levels and inventories are below 2006 levels and declining. This is a leading indicator for how the retail side of the equation considers the future of the housing industry and it does not take rocket science to figure out that it is not going to be a positive result.
Another key area for indications of growth historically has been forward orders for machinery and equipment which covers everything from bulldozers to machine tools and then some more. The United States machine tool industry has pretty much been outsourced but this category does give one a clue as to the condition of the industrial base and if it is preparing to expand:
As the charts above indicate, despite growing inventories, sales are now and have been languishing below 2006 levels and I suspect that by the time this data is complete for Q1 2010 it will indicate a deterioration further downward reaching levels comparable to the 2001-2002 recession period.
The last of the durable goods category is the “Miscellaneous” category which basically is the catch all for everything left out of the industrial, electronic, automotive, etc. categories. With this chart I posted it just to determine what the remainder of the durable sales might consist of and to see if there was a different story in these numbers.
The sort of catch all category has finally flattened out but does not indicate any further deterioration below the pre-crisis levels of 2007 but if sales continue to decline that inventory gap could widen further thus there appears to be some room for further inventory reductions by manufacturers and distributors.
I selected the grocery portion of the non-durable goods from this report for the purpose of demonstrating that people still have to eat but the sales numbers are consistent with a downturn of this severity:
With that category stabilizing at 2007-2008 levels in the mid forty billion range it should give one some idea that while the consumer is pretty much dead for luxury and durable good items, the markets for what you have to purchase to survive has stabilized although a drop below those levels could indicate a further retrenchment if wholesale and retail prices for food and other items continue to increase instead of stabilize.
Part 3 on Tuesday night will focus on the real estate market, primarily the commercial sector although the data on the residential markets has become worrisome for many as the next wave of foreclosures begins to come ashore.
-Edit to add: I apologize for this not posting up until almost midnight on 1/11 ET. Comcast decided to die last night leaving me without high speed internet thus making it somewhat impossible to get this piece posted. JG
