Good Morning Ricter: 4Q GDP misses expectation and...

Tsing Tao · Jan 27, 2012

A staggering 1.9% of the 2.8% GDP number is due to Inventory Stockpiling or...."channel stuffing".

Commentary from ZH (because it makes me laugh):

The US economy grew at a 2.8% annualized pace in the supposedly blistering fourth quarter, yet the number was a disappointment not only in that it missed estimates of 3.0% (and far higher whisper numbers) but when one looks at the components, where a whopping 1.94% of the upside was attributable to a rise in inventories as restocking took place. And as everyone knows in this day and age a spike in inventories only leads to sub-cost dumping a few months later. In other words, the economy grew at a 0.8% pace ex inventories. Yet for all intents and purposes, this is considered "growth." Personal consumption was also weaker than expected coming in at 2.0% on estimates of 2.4%. Perhaps the only silver lining was Core PCE which came at 1.1% on expectations of 0.9%, however as discussed extensively before, this was driven by an unsustainable surge in credit-binge spending, primarily for iStore trinkets, and is hardly sustainable especially as the US Savings Rate fell to 3.7% in the fourth quarter, the lowest since Q4 2007. In other words Joe Sixpack is living large, especially since Joe Sixpack no longer has to pay his mortgage. Unfortunately this is a collision course with every economic principle and the next taxpayer funded bank bailout is only a matter of time. Bottom line: the artificial economic pick up is over and Q1 will see inventories actually detract from GDP, not to mention the tight fiscal situation no longer being a benefit to growth. Oh yes, and gas is no longer falling. To paraphrase Lester Burnham, "It's all downhill from here."
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pspr · Jan 27, 2012

Don't worry. Obama wants us "making stuff, buying stuff and moving it around".

Obama is going to buy all that "stuff" for the White House. Then we can make more "stuff" and move it around.

TGregg · Jan 27, 2012

We need to break some windows.

Ricter · Jan 27, 2012

<img src="http://research.stlouisfed.org/fred2/data/ISRATIO_Max_630_378.png">

<img scr="http://www.bls.gov/lpc/nfbbar.gif">

US durable goods orders:
http://ycharts.com/indicators/durable_goods_orders/historical_data

<img src="http://www.taintedalpha.com/wp-content/uploads/2011/01/TaintedAlpha.com-U.S.-Retail-Sales-14012011.gif">

In other words, one man's channel stuffing is another man's "restock, restock!" I included the productivity chart to support my gut-feel explanation for the volatility.

HOWEVER... the household debt to income ratio... improving, but bad, worse than the government's in fact. It's falling, but the rate of fall is decreasing.

[Sorry 'bout the oversize chart, I hate side-scrolling too. And the durable goods orders data is a link to a table. Could have taken a screenshot of that I suppose.]

Tsing Tao · Jan 27, 2012

Channel Stuffing is when inventory "restocking" exceeds future demand. Something that is evident from last Christmas's "price slashing" gone wild. But it is, technically, restocking.

So what is it you were trying to prove in your post? Because I'm not sure where you're going with any of it.

As for debt to income - I cant see any image or link you have with that. Did I miss something?

Ricter · Jan 27, 2012

Quote from Tsing Tao:

Channel Stuffing is when inventory "restocking" exceeds future demand. Something that is evident from last Christmas's "price slashing" gone wild. But it is, technically, restocking.

So what is it you were trying to prove in your post? Because I'm not sure where you're going with any of it.

As for debt to income - I cant see any image or link you have with that. Did I miss something?
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I say that inventory restocking is not exceeding projected demand. Americans are acting more optimistic, inventories are very lean, manufacturing and supply-chain are highly productive, so an uptick in demand is rapidly met by an uptick in supply. Is the supply response too strong? Maybe. If it is, then one could argue that channel stuffing occurred, but in my opinion channel stuffing carries the negative connotation that wholesalers know that they're forcing product, and honestly I do not see retailers falling prey to this, in general (some mom and pop shop may overbuy, but big business knows the peril of carrying too much inventory). Anyway, throughout the supply-chain, this is the "whiplashing" business experiences as a result of JIT.

[I have to give up on this thread, I'm on my laptop today, and the width is too much.]

Tsing Tao · Jan 27, 2012

Quote from Ricter:

I say that inventory restocking is not exceeding projected demand. Americans are acting more optimistic, inventories are very lean, manufacturing and supply-chain are highly productive, so an uptick in demand is rapidly met by an uptick in supply. Is the supply response too strong? Maybe. If it is, then one could argue that channel stuffing occurred, but in my opinion channel stuffing carries the negative connotation that wholesalers know that they're forcing product, and honestly I do not see retailers falling prey to this, in general (some mom and pop shop may overbuy, but big business knows the peril of carrying too much inventory). Anyway, throughout the supply-chain, this is the "whiplashing" business experiences as a result of JIT.

[I have to give up on this thread, I'm on my laptop today, and the width is too much.]
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Channel stuffing does not mean suppliers are necessarily doing it on purpose. Although in the case of the US car manufacturers, it is quite obvious they are.

As for the term "projected" demand, you leave a lot of wiggle room for the manipulation of all sorts of statistics. But when 67% of the GDP number is based on inventory restocking and NOT Consumer expenditures (which came in less than expected - there goes your projected demand being accurate) then something is rotten in Denmark.