Did I mention details? Jeffrey Snider at Alhambra Investments goes deep, April 27th, 2022 (charts omitted, he does good charts):
Historic Inventory Continued In March, But Is It All Price Illusion, Too?
The Census Bureau today released its advanced estimates for March trade. These include, among other accounts like imports and exports, preliminary results reported by retailers and wholesalers. That means, for our purposes, inventories.
Oh my, was there ever more inventory. It was, apparently, widely expected that following an avalanche of goods building up over the previous five months the situation might calm down a touch. Analysts had figured wholesale inventories, to start with, might have gone up 0.9% from February to March after having surged 2.5% January to February.
No sir. On the contrary, wholesale inventories jumped again, another 2.3% month-over-month during March. And that was on top of a slightly higher revised estimate for February.
Retail inventories (excluding automobiles and parts) were thought to have maybe added 0.5% last month. Census today says it was another blockbuster, also up an enormous, historic 2.3% month-over-month.
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These results are just as staggering as they at first appear. Only once, back in May 2011, had wholesale inventories increased by more than 2% in any single month. It has now happened four more times in just the last six (and November was close to the same threshold, nearly making five).
March’s 2.3% was the second highest on record, behind only February’s revised, meaning two in a row at rates never before seen.
The situation is even more remarkable in retail. The largest prior single-month gain had been December 2018’s. This has since been surpassed by every single month since December 2021’s whopper; make it now four straight surpassing the prior record high.
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On an annual basis, wholesale inventories are up 21.2% while retailer inventories (still not counting motor vehicles) surged 17.5%.
Yet, those figures also coincide with some of the largest price changes in recent memory. This naturally raises the question, is it all just price increases? Has the inventory side of the goods economy been hit by the same price illusion creating confusion all around the same segment of the global economy?
Buy more get less would, in this context, suggest less physical inventory that just costs more. Less a problem of space and perhaps sales, though still uncomfortable when it comes to working capital.
The qualified answer is, yes, the illusion has definitely goosed the inventory numbers which are estimated by value rather than volume. However, the values are largely at cost rather retail, meaning it isn’t clear by how much.
To try to get to the bottom of everything, I simply deflated the inventory estimates by the CPI since the CPI has risen higher and faster than the PCE Deflator (and using the PPI is further in the direction of oranges rather than the apples we seek). You can argue that neither are consistent with our purpose, and that’s fair, though I believe they’re close enough since that kind of precision is unnecessary; as you’ll see.
Broad strokes, the deflated inventory numbers absolutely show that while price changes have boosted the values, there is almost certainly an underlying buildup of physical supply, too.....
....MUCH MORE
