Inventory flood continues just as consumers rush

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If it continues to play out the same way, it would be all the worst case scenarios rolled into one. A very unfortunate convergence, but nevertheless quite predictable.

Consumers reaching their absolute spending limits. Warehouses and storage capacity nationwide are shrinking to long-standing lows, leaving businesses with no option to store incoming goods. And, of course, the flow of goods into inventory which shows no signs of letting up (yet).

Taking the latter first, yesterday the Census Bureau released its advanced estimates for wholesale and retail stocks. For starters, the March figures were already excessive; in retail trade, the month-to-month change (seasonally adjusted) had been the second highest on record, behind only December.

March review almost double the monthly rate.

Retailer inventory

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Retailer inventory

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April’s 1.7% update would have been the second highest on record had it been April 2021, but now looks small compared to those gains since October.

And, as noted earlier, it’s not all about price effects. Using one form of deflation factor or another, regardless of how you account for price changes, the result is the same. There’s a historic influx of actual goods on top of shipping bills, and that hasn’t stopped for retailers since October.

Retailer sales and inventory

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For wholesalers, the flood of stocks dates back a few months to last July. Like the retail level, the wholesale trade is both real (adjusted price) and disproportionate. To put April’s early estimate into perspective, when it gained 2.1% m/m, this is only the sixth highest.

It would also have been second had it not been for the past four months (with the March figure also being revised upwards).

Retailer sales and inventory
Wholesales and inventory
Wholesales and inventory

So, as goods continue to flow into the US supply chain, it increasingly looks like consumers have run out. Nominal spending is rising, but it is only the price illusion that is redistributing what is left of the economy after 2020 in a harmful way.

With the Target (TGT) and Walmart (WMT) caveats in mind, now comes the Bureau of Economic Analysis with its personal income and spending data. The key on the income side, real personal income excluding transfer receipts, has been revised a bit upwards in recent months, but continues to evolve nowhere.

Americans are earning more on their paychecks, collectively among the least likely to work (compared to 2019), but that’s not keeping up with prices. Earning a little more, paying a lot more, all to get a little less for the round trip.

Personal income

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Real personal income

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The most concerning part of today’s BEA release has to be the savings; they don’t have much left. The personal savings rate has fallen to just 4.4%, the lowest since the first part of the Great “Recession”.

It is typical to find a low savings rate associated with the onset of any macro-contraction phase. The simple reason is that there is nothing left for consumers to sustain continued spending at the same rates, no margin for any perceived or actual error.

The savings rate has fallen because, overall, consumers/workers are paying more, receiving less, and not earning enough to make up the difference. Savings at these low levels is consistent with what Walmart and Target had said last week about consumers switching to lower-cost items as well as reducing overall purchases.

There has always been a limit to last year’s supply/helicopter shock trend, and savings such as warnings from retailers are a particularly worrying sign that the limit is near.

Personal savings rate

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All of this just in time for the historic deluge of inventory, and no room in the warehouse for tired goods have traveled.

However, while all that new warehouse space is still being built, industrial vacancy in the United States fell to just 4.2% in the first quarter, a 27-year low after falling another 130 basis points in the first quarter. course of the last year.

These pressures have led to depletion of industrial space in coastal areas near seaports, where tenants are now experiencing double-digit rental growth in key markets like Southern California (up 18.8 %), northern New Jersey (up 16.1%), and South Florida (+15.8%).

While certainly a big deal for the domestic picture, the US consumer may have been the only exception anywhere in terms of activity over the past year, fourteen months (of data). By buying online from overseas suppliers, the downturn in the inventory cycle could hit the rest of the global economy even harder for lack of momentum or an alternative to (over)buying in the US.

There’s a reason the financial markets have gone crazy, several, in fact, and this toxic stew of extremes sits (along with the scarcity of collateral) at the top of every list. And, at first, it happened quite predictably.

Rate hike? Even if they were more than symbolic, they are simply not necessary.

Yield curve

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UST yield curve

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Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.