Inventory Correction Ahead?

[OlympicBrian]

Recently, I posted a little piece from stock market "bear" SocGen's Albert Edwards, who claimed "The Inventory Boom Is About To End And Crush U.S. GDP." Sounds a bit severe, huh?

Now, he put up an interesting graph showing ISM US inventory build vs. new orders, and it showed a big gap, with inventory out-pacing orders--leading by six months (linked below.) I wondered about it at the time, but haven't really seen a signal of his prediction until today. Specifically, the new durables orders came in today way below forecast:

"Durables orders in October fell 3.3 percent, following a 5.0 percent spike the month before. The October figure came in notably below the median market forecast for a 0.1 percent decline. Weakness was broad based but led by transportation. Excluding transportation, durables declined 2.7 percent after rising 1.3 percent in September."

(click on "Durable Goods Orders")
http://www.bloomberg.com/markets/economic-calendar

Here is the original story, from a few weeks back:

"The U.S. economy has the potential to slip back into recession even though many of the cyclical drivers are already rock bottom, according to Albert Edwards.

Edwards says that, even though new home construction and consumer durables are already at lows, the U.S. economy has a lot of GDP growth left to lose. This is because the U.S. consumer has yet to come back and, right now, the economy's main driver, inventory rebuilding, is about to come to an end."

Read more: http://www.businessinsider.com/albert-edwards-inventory-boom-end-2010-11#ixzz16EdBSvxv

Based on the big drop in orders today, could he be right?

Comments?

[geckosfeet]

1. So corpos can't forecast properly - and we go into recession? The economy suffers

because these people can't figure out how forecast sale so that their companies don't don't lose money and have to lay people off?

Just another example of how corporate incompetence hurts everyone except the corpos.

[OlympicBrian]

2. Just my opinion

Yeah, you could be right.

Something funny going on at places like Cisco Systems, as one example.

When so many fires (stimulus) are lit under the economy, inventories would seem bound to get over-stocked, if the planners are off by even a little bit.

I wonder what Christmas sales will be like--or the period right after.

p.s. The graph linked in attached to the story is a little murky on the right, I'm not sure how he got his points to plot.

[geckosfeet]

3. Not saying it can't happen - just that IF recession happens because of crappy

sales forecasting it is the companies screwing up and the economy that takes the hit.

Personally, I think there would have to be a whole lot of inventory across many market sectors to cause that much damage to the economy.

Cisco probably sells mostly business/industrial systems - not affected a whole lot by seasonal/holiday sales.

[OlympicBrian]

4. Well, ISM new orders and inventories

are a broad measure across industries...including "apparel, leather & allied Products" and other stuff:

http://www.ism.ws/ismreport/mfgrob.cfm

Also noted this as the last line in an upbeat-sounding Reuters story:

"More concerning, non-defense capital goods orders excluding aircraft -- a closely watched proxy for business spending -- dropped 4.5 percent after rising 1.9 percent in September."

http://news.yahoo.com/s/nm/20101124/bs_nm/us_usa_economy

[coalition_unwilling]

5. I'm not sure if this is germane, but my wife and I have noticed a very

muted atmosphere at two Southern California malls we have visited in the past couple weeks. I'm talking about numerous retail outlets in the mall having no customers at all for protracted periods of time.

I posted about it here and invited other DU'ers to relay snapshots of their particular geographic circumstances:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x9606470

Personally, I think a hard rain's a gonna fall, come January 2011.

[OlympicBrian]

7. Yeah I saw that thread, and...

Interestingly, the boom areas are agricultural places like Des Moines, due to huge run-ups in the prices of corn, soybeans, and cotton. I read a report about this.

[coalition_unwilling]

8. Well, in all fairness, someone in a suburb of Atlanta said the malls were burning up there and

that report came in only today when I kicked my thread. But, yeah, it does seem like it's the rural areas that are reporting the higher velocities of money right now. Not sure what to make of that, although higher commodity prices might explain some of it.

My wife and I are not uber-shoppers and do not go to the malls very often. But lately we have been trying to walk for 90 minutes each day and, when the weather here gets a bit intemperate, we go to the malls for the cliamte controlled environment. Is why I have been observing and reporting on what I've been seeing.

[geckosfeet]

10. My company does a lot of online sales and we have exceeded forecast 8 out of the

10 past months - including October. Retail and wholesale outlets have exceeded forecasts 6 out last 10 months - including October.

These are higher end consumer electronics.

[OlympicBrian]

9. Record U.S. Exports Reflect Midwest (Farm) Boom With 3.7% Unemployment

"As businesses across the U.S. struggle to recover from the deepest recession since World War II and the national jobless rate remains stuck at 9.6 percent, Johnson has benefited from his location in the northern Great Plains, where a boom in commodities, such as wheat and soybeans, is helping to create jobs, lift farmers’ incomes and fuel demand for goods ranging from Deere & Co. tractors and Agco Corp. combines to dinners at local restaurants."

http://www.bloomberg.com/news/2010-11-22/record-u-s-exports-from-farms-reflect-midwest-boom-with-3-7-unemployment.html

[OlympicBrian]

6. A more clear graph of new orders

You can see a dip followed by a little upturn on the yellow line:

http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/napm.htm

[Eddie Haskell]

11. It's Christmas!

Inventories are built up in advance of the holiday season. Have a good one.

[OlympicBrian]

12. Merry Christmas to you too

Of course inventories grow before Christmas; they've been growing for a long time, the question is how much have they have grown relative to actual demand. And then if you look at the graph carefully, the peak on the inventories line on the right is well above all the other peaks, going back many decades. Is economic demand as good or better than it has been in decades?

Something doesn't add up. Has he interpolated points on the right side of the graph?