FINANCIAL ICEBERG

Always consider hidden risks

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CHARTS

As for the change in private inventories, here is a snapshot of its contribution to quarterly GDP since 2000 with two recessions highlighted. The build up of inventories in the US is happening at a very bad timing : world economy is slowing and the fiscall cliff is putting a huge delay on investment and consumption...

By digging a little bit into the numbers, I discovered that the inventories build up come from all level of the US economy ( Manufacturing, Wholesales and Retail ) shown by the graphs below...

TOTAL BUSINESS INVENTORIES TOTAL DURABLE GOODS INVENTORIES

WHOLESALES INVENTORIES RETAIL INVENTORIES

US Growth = Inventories

( BLS, FRED , DShort)​

What the market is not yet figuring out is that a good part of the growth since the financial crisis is coming directly from the huge buil up in inventories... AndI ll try to convince you by showing you those graphs below...

Let s start with the graph of US Total Business Inventories compare to US GDP...

US Total Business Inventories ( Blue Line / Right Scale )

US GDP ( Red Line / Left Scale )​

And on the graph below, it is more obvious to show you on a ratio basis...

Ratio of US Total Business Inventories VS US GDP

Conclusion



​​ The increase in real GDP since the financial crisis primarily reflected positive contributions from private inventory investment ; not only from the durable goods side, but even on the wholesale side and even more on the retail side of the equation...



Either or the economy accelerate and is able to consume that extra inventory, or the economy will slow even more by adjusting themselves the appropriate level of inventory...



Hope I was able to convice you on that inventory build up trend... Stay tuned for more interesting stories !​