That inventory restocking has to be out there somewhere, right?
For months now, we’ve been skeptics of the great “inventory rebuilding” hypothesis that seemingly every economist and market pundit (and their brothers) seemed to latch on to in predicting our imminent economic rebound and end to the recession.
Well, jury’s still out on whether the recession’s over, but one thing’s for sure — we’re still waiting for the inventory restocking.
In today’s November ISM manufacturing survey, Barclays Capital said the “greatest source of weakness was inventory liquidation.”
ISM said manufacturers’ inventories “contracted at a faster rate in November,” with the index at 41.3, its lowest level since August.
Apparel, leather & allied products “is the only one of 18 manufacturing industries reporting higher inventories in November,” ISM said.
On top of that, the institute said it was the eighth consecutive month that the customers’ inventories index has been below 50 percent. In fact, the index registered 37, lowest since May 2004 and actually hasn’t been lower since at least 2002. Only two of 14 industries reported higher customer inventories.
Early on, we thought the inventory restocking thesis was over-hyped for a few reasons. One, we didn’t expect weak demand to warrant much of an increase in inventories. People without jobs usually don’t buy a lot of new stuff. Call it Econ 101, if you will.
The fact that the restocking idea was being parroted unquestioningly by so many “economists” — despite clear hurdles for demand – was another reason we were leery.
The final clue was commentary from transportation companies – railroads and truckers. They kept saying they weren’t shipping much stuff, and didn’t expect to be shipping more stuff in the near future. How robust could inventory rebuilding be if there isn’t much product being shipped? That might also be Econ 101.
We’ll still keep an eye out for the much-exaggerated inventory rebuilding, and let you know as soon as we spot something.
John Shipman
December 2, 2009
Hi John,
I just came across your blog for the first time. I think this is a good observation, perhaps because I have been skeptical of the inventory cycle hypothesis as well. I am wondering what resources you use (ie. publications, blogs, trade groups, etc.) to track trucking, railroad, shipping, and other logistics news and data? Do you know of any specialist data and research providers that are global in coverage?
Additionally, how long of lags do you normally see? I imagine trucking has the shortest and shipping the longest but I struggle to see where railroads fall.
Keep up the good work on the blog, I shall return