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.}

Contents

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).

(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.

(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).

(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

If you liked this post, like us on Facebook and follow us on Twitter. See my articles at Seeking Alpha with trading advice…

• The Simple Version Of The Apple Story, And How To Trade it (Spoiler: sell now).
• Effects Of The Coming Market Crash On The Economy – And Perhaps On You.
• Playing The Bubble Game: Investing In The 21st Century.
• Banks Are The Key To This Stock Market Decline – And The Recession That Might Follow.

And these about the US economy…

• How To Spot A 2016 Recession While On The Horizon, And Prepare For It.
• The Government Has A Clip Full Of Bullets To Fight The Next Recession.
• Rapidly Rising Household Debt Predicts Recessions. See America’s Future.
• Hold The Hysteria. The US Economy Is OK, So Far.
• About Those Scary High Auto Inventories: The Fed Disagrees.
• Valuable Surprises In The January Jobs Report.