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A rise of six quarters, with the first signs that some began to relax.
The increase in inventories I have been discussing for a while played an important role in the surprisingly strong growth of 3.2% of GDP reported on Friday, but it also played an important role in 2018. It also played an important role in 2014 and in early 2015 as stocks still do, during a series of events that triggered the "transportation recession" in 2015 and 2016 (here's a taste of May 2016: "The plunge rail freight traffic: haunted images of the recession in the transport sector: 292 Union Pacific engines idling in the Arizona desert "). As a result, the overall economy of 2016, still supported by service growth, grew only 1.6%, the smallest growth since the Great Recession.
The Bureau of Economic Analysis reported that private stocks in the first quarter increased annual rate $ 129 billion compared to the fourth quarter of last year, seasonally adjusted. "Annual rate" means that if stocks continue to grow at this rate, the total increase for the entire year would be $ 129 billion. But it was not as big as Q1 and Q2 2015.
The increase in stocks is considered an investment and is added to GDP as such; conversely, decreases in inventories are subtracted from GDP.
This inventory increase in Q1 2019, adjusted for inflation, added +0.65 percentage points to GDP, according to the BEA. Without this increase in inventories – so with stable stocks in Q4 in Q1 – GDP growth of 3.2% would have been 2.55%.
In 2018, changes in inventories had an impact on GDP growth:
- Q4 2018: +0.11 percentage point
- Q3 2018: +2.33 percentage points
- Q2 2018: -1.17 percentage points
- Q1 2018: +0.27 percentage point
The graph below shows the quarterly increase or decrease in stocks expressed as an annual rate:
In terms of actual increase in stocks, do not an annual rate: Inventories increased by $ 46.3 billion in the first quarter compared to the previous quarter, adjusted for seasonal variations. The graph below shows the changes from one quarter to the next. The first quarter of 2019 jump was slightly higher than the first quarter of 2018 ($ 44.8 billion) and was lower than the fourth quarter of 2017, the fourth quarter of 2016, the second quarter of 2014 and the first quarter of first quarter of 2014:
In terms of total private inventories, they reached a record $ 2.83 billion (seasonally adjusted) in the first quarter. At the activity level, inventories are valued at cost, and the final sales amount of these $ 2.83 trillion will be much higher. In other words, there are many things in the inventory.
Inventory levels of $ 2.83 billion increased 3.8% year-over-year, consistent with the year-over-year increase in the fourth quarter. However, these two increases were the weakest compared to the second quarter of 2017. However, when companies reduce their stocks by ordering less, this has repercussions on the economy and slows GDP growth – and in 2015 and 2016 triggered the "transport recession":
Inventories in the first quarter of 2019 were up 1.7% from the prior quarter, the same as the first quarter of 2018, but lower than the 2.4% increase recorded in the fourth quarter of 2017. This accumulation inventory has been essentially continuing for six quarters. , on which stocks climbed $ 210 billion, or 8%.
The chart below shows the total private stocks in billions of dollars (blue columns, left scale) and the percentage change from one quarter to the next (green line, right scale), seasonally adjusted :
The largest categories among private inventories totaling $ 2.83 billion are manufacturers, wholesalers, retailers and farms.
Agricultural stocks are steadily declining since their peak in 2014, down 26% (unadjusted for inflation) from $ 237 billion in 2014 to $ 173 billion in the first quarter of 2019, according to the BEA.
Manufacturers' inventories rose 3.6% from one year to the next in February to a record $ 692 billion (unadjusted), according to the latest data available from the Commerce Department. But from mid-2014 to December 2016, manufacturers reduced inventories, reaching a low of $ 615 billion in December 2016. This inventory reduction contributed to the dismally slow GDP growth in 2016 of 1.6% and recession."
Stocks at retailers, including car dealerships, increased by 4.3% year-over-year in February (latest data available from the Department of Commerce) to reach $ 661 billion.
Retail inventory includes $ 249 billion in new and used vehicle dealers and auto parts dealers, whose inventories rose $ 1.8 billion in February, and 5 , $ 5 billion in January (most recent data available), after decreasing by $ 7.3 billion in December. These data are not adjusted for price changes.
On the basis of consumer demand, automakers opted for more expensive pickups, SUVs and crossovers ("trucks"), sales that increased 38% from 2014, and moved farther of cars, whose sales collapsed by 30% over the same period. . As a result, the composition of these dealer inventories has also changed in favor of these more expensive "trucks", and the dollar value of these inventories has increased in part because of this change.
Since this shift from cars to "trucks" has taken off (a change that I have long called "Carmageddon") at the end of 2014, the total value of auto stocks has increased by 42%! Part of this increase in the value of these stocks is therefore structural and is unlikely to reverse.
Inventories at merchant wholesalers soared 6.9% year-on-year, to reach $ 669 billion in February.
Within this group, wholesale inventories of durable goods, which totaled $ 415.6 billion in February, began to grow in mid-2018 and reached double-digit growth rates in December ( + 10.7%), in January (+ 11.6%) and February (+ 10.6%). But February, month after month, already marked a slight decline from January, a first sign that companies began to try to reduce their stocks.
Now, a similar pattern is emerging, as we had seen before and during the last transportation recession in 2015 and 2016: stocks of durable goods have been accumulating in wholesalers since the end of 2017, while as the volume of shipments, followed by the Cass Freight Index, after a historic boom in 2018, have now declined four months in a row.
The chart below shows the Cass freight index for shipments (columns) and wholesale stocks of durable goods (green line), both expressed as a percentage change from the same month of the year. last year. Inventories follow late shipments:
So, where are you going?
On the retail side, there is some seasonality in auto inventories, but these data are also seasonally adjusted. Overall, the structural transfer to more expensive new types of vehicles ("trucks") will continue to be effective until this change is made. Given seasonal fluctuations from one quarter to the next, I expect the value of vehicle stocks to increase globally in 2019 and boost GDP.
But the likely process of inventory reduction among wholesalers and manufacturers will act as a brake on GDP, with the first signs appearing as early as the second quarter and becoming widespread next year. The magnitude of the loss will depend on how quickly stocks are reduced. For now, the signs do not predict a massive reduction in panic stocks, but rather a cautious and slow process that does not dramatically affect GDP.
"Patient" may become less patient. Lily… I just hope the Fed will not see this: The US economy records an eruption in the first quarter
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