Don’t Believe the Hype!

As the lyrical philosophers ‘Public Enemy’ so eloquently put it, “Don’t believe the hype”. Another classic ‘positive’ indicator headline.  Today the Wholesale Inventories number came out and missed expectations by just under 20%, coming in at .5% vs estimates of .6%.  A rise in inventories can signal confidence in future consumption.  And although inventories rose they rose by less than expectations meaning that economists who use these indicators in their GDP estimator functions will have to revise their estimates downward.  Much blame, outside snow in the winter, for the large decline in Q1 GDP was placed on a sluggish inventories.  And so one would expect below estimate inventories to affect forward looking GDP estimates. Further if you take the latest inventory figure excluding autos inventories rose only .3% meaning autos are making up 40% of the inventory build.  And as we’ve discussed recently automobile purchases are being done almost entirely on debt.  Again large ticket debt purchases do not add to consumption but merely substitute other consumption as large monthly payments eat into disposable income.  In short, the rise in inventories missed expectations by almost 20% and much of the rise was due to auto inventories building up.  Now those are the facts which will lead to downward revised GDP estimates.  BUT, let’s see how CNBC headlined this story today.

 

“Wholesale inventories gain in May, helping to feed growth optimism”