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March 18, 2016 | Inventory to Sales Ratios Spell Trouble Three Ways

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

In light of the recent and unexpected decline in retail sales, let’s put a spotlight on the equally unexpected buildup in the inventory-to-sales ratio, three different ways.

Wholesalers Inventories-to-Sales Ratio

Inventories to Sales 2016-03-15

Retailers Inventories-to-Sales Ratio

Inventories to Sales 2016-03-15A

Total Business Inventories-to-Sales Ratio

Business Inventories 2016-03-15

One way or another these inventory buildups will be worked off.

  1. Sales must improve
  2. Production must decline
  3. Some combination of the above

The obvious problem with number one is easy to explain: Retail Sales Down, January Sales Revised to -0.4%

Bloomberg Econoday commented on retail sales as follows: “Consumer spending did not get off to a good start after all in 2016 as big downward revisions to January retail sales badly upstage respectable strength in February.

Respectable Strength?

Retail Sales 2016-03-15

I also point out a net 10% of large corporations plan to reduce headcount in 2016.

For details, please see 38% of Companies to Reduce Employment in 2016, Only 29% Expect Increase: Five Consequences.

With hiring plans negative and with 82.8% Expecting Real Incomes Will Decline in 2016, faith in consumer willingness and ability to work off the buildup in inventories is quite a bit misplaced.

Mike “Mish” Shedlock

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March 18th, 2016

Posted In: Mish Talk

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