What’s Going On With The Economy: Making Sense Of The Clashing Numbers

Summary; Here is a look at today’s data, helping to spark a rally but in fact showing a slowing economy. Today’s numbers show the clashing signals typical of an economy nearing an inflection point — in this case, typical of an economy before a recession (or an economy pausing before surging).  {2nd of  2 posts today.}



  1. December’s business inventory to sales ratio: rising.
  2. January’s Retail sales: still slowing.
  3. Freight volume: reports of its death are premature.
  4. Conclusions.
  5. For More Information.

(1) December’s business inventory to sales ratio: rising.

This is at best a coincident indicator, showing a mismatch between orders and shipments. We do not know the cause. Ordering for an expected rise in sales that didn’t happen? Transportation bottlenecks? Unexpected slowing of sales?

Whatever the cause, the usual response of businesses is to reduce orders. Even worse, getting caught with high inventories when a recession starts means that the drop in orders will be severe. December’s i/s ratio is the highest in 14 years (since Jan 2002).

December 2015: Business Inventory to Sales Ratio

(2) January’s Retail sales: still slowing.

The reaction to today’s release of January retail sales shows the classic focus on the trees while ignoring the forest. It’s noisy data, so while the month-on-month rise is nice — more important is the continued slowing. The big January rise is 2.4% annualized, slower than the 3.1% year-over-year change.

Retail sales are a coincident indicator, telling us how we are today — but telling us little about tomorrow.

January 2016 Retail Sales

(3) Freight volume: reports of its death are premature

Despite the near-hysteria among perma-bears, actual data shows US and North American freight volume remains stable. As shown by one of the best, the Cass Freight Volume Index for North America: down 0.2% YoY (not seasonally adjusted).

January 2016 Cass Freight shipments (YoY)

(4) Conclusions

Investors often disregard data that conflicts with their personal forecast. Doing the opposite can work for you.

The economic data paints a clear picture of a growing economy — but one whose rate of growth is slowing. Since we’re flying so low, slowing can produce a crash before the government can respond with fiscal and monetary stimulus.

Be careful.

(5) For More Information

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And these about the US economy…

1 thought on “What’s Going On With The Economy: Making Sense Of The Clashing Numbers”

  1. In my business, capital equipment for environmental compliance and water reclaim for reuse, business is strong and trending stronger. It’s changing too. In past customers bought only if they had a gun to their heads held by regulators. New plant and equipment was dead. Same for process improvement. For thirty years the first best use of capital was to add bank leverage and to buy or build assets like housing and industrial real estate. Now that game is ended and we are getting serious inquiries from plant owners who haven’t improved their process since WWII. For example ethanol plants are using our equipment to save on their obscene energy waste. Another will change the process of making ethylene glycol, a process unchanged since 1947. In brief, the first best use of capital is now shifting to process improvement through plant upgrades and adoption of “new” technologies like membrane separations displacing evaporation. Shumpeter’s creative destruction. Many see only the death of leveraged asset flipping, not the resurgence of more ordinary capital formation. It’s not all doom and gloom but it is for many a painful restructuring of priorities.

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