US Macro Updates

Key takeaway: Retail Inventories had been rising for more than a few months now. However, over the past couple of months that data has moderated a bit. Firstly, the Census Bureau’s Advance report on retail inventories showed Retail inventories were flat 0.0% in October compared to the previous month. Core inventories, which exclude motor vehicle and parts, decreased 0.9% in October. Secondly, core retail inventory growth for September was also revised down from 0.3% to negative 0.4%. Usually retail inventories jump sharply up during the initial stages of a recession. The recent increase in Retail Inventories was hence concerning. However, sales has still been resilient. Retail Inventories to Sales ratio is still substantially below pre pandemic levels. And now the last two months of data has also shown inventories coming down. In summary, even though retail inventories have been steadily rising for the past one year, it is difficult to gauge any recessionary winds on the basis of just that data.   

• Core Retail Inventories decreased 0.9% m-o-m in Oct 2023
• Retail inventory to sales ratio chart

26th Oct 2023

Key takeaway: Retail Inventories have been rising for more than a few months now. The Census Bureau’s Advance report on retail inventories showed Retail inventories increased 0.9% m-o-m in September. Core inventories, which exclude motor vehicle and parts, also increased 0.3% in September. Usually retail inventories jump sharply up during the initial stages of a recession. While retail inventories have been steadily rising for the past one year, they are still much below pre-pandemic averages. The story so far has been – A build-up in inventories in late 2021 and early 2022. Which was expected to be deflationary in nature. However, US consumers kept surprising everyone with their resilience and those inventories kept getting consumed. The latest retail spending data is still indicative of resilient consumption. How the consumption is being financed – through savings or debt – almost does not matter in this context. Hence. so far the rise in retail inventories is not yet concerning. If anything, it is adding positively to GDP numbers.  

• Core Retail Inventories increased 0.3% m-o-m in Sep 2023
• Retail inventory to sales ratio chart

29th Sep 2023

Key takeaway: There has been an interesting divergence in Wholesale inventories and Retail inventories over the past 3 months. Wholesale inventories have been falling and Retail Inventories are rising. The Census Bureau’s Advance report on retail inventories showed Retail inventories increased 1.1% m-o-m in Aug. Core inventories, which exclude motor vehicle and parts, also increased 0.6% in August. Usually retail inventories jump sharply up during the initial stages of a recession. While retail inventories have been steadily rising for the past one year, they are still much below pre-pandemic averages. The story so far has been – A build-up in inventories in late 2021 and early 2022. Which was expected to be deflationary in nature. However, US consumers kept surprising everyone with their resilience and those inventories kept getting consumed. The key event to watch is whether the US consumer shows up once again to consume at the same pace as last year!  The evidence so far, even as late at Q3, still suggests that the US consumer is ready to spend. 

• Core Retail Inventories increased 0.6% m-o-m in Aug 2023
• Retail inventory to sales ratio chart

30th Aug 2023

Key takeaway: There has been an interesting divergence in Wholesale inventories and Retail inventories over the past 3 months. Wholesale inventories have been falling and Retail Inventories are rising. The Census Bureau’s Advance report on retail inventories showed Retail inventories increased 0.3% m-o-m in July. Core inventories, which exclude motor vehicle and parts, also increased 0.1% in July. Usually retail inventories jump sharply up during the initial stages of a recession. While retail inventories have been steadily rising for the past one year, they are still much below pre-pandemic averages. The story so far has been – A build-up in inventories in late 2021 and early 2022. Which was expected to be deflationary in nature. However, US consumers kept surprising everyone with their resilience and those inventories kept getting consumed. The key event to watch is whether the US consumer shows up once again to consume at the same pace as last year!  

• Core Retail Inventories increased 0.1% m-o-m in Jul 2023
• Retail inventory to sales ratio chart

27th Jul 2023

Key takeaway: There has been an interesting divergence in Wholesale inventories and Retail inventories over the past 3 months. Wholesale inventories have been falling and Retail Inventories are rising. The Census Bureau’s Advance report on retail inventories showed Retail inventories increased 0.7% m-o-m in June. Core inventories, which exclude motor vehicle and parts, also increased 0.4% in June. Usually retail inventories jump sharply up during the initial stages of a recession. While retail inventories have been steadily rising for the past one year, they are still much below pre-pandemic averages. The story so far has been – A build-up in inventories in late 2021 and early 2022. Which was expected to be deflationary in nature. However, US consumers kept surprising everyone with their resilience and those inventories kept getting consumed. The key event to watch is whether the US consumer shows up once again to consume at the same pace as last year!  

• Core Retail Inventories increased 0.4% m-o-m in Jun 2023
• Retail inventory to sales ratio chart

28th Jun 2023

Key takeaway: The Census Bureau’s Advance report on retail inventories showed inventories increased 0.8% m-o-m in May. However, core inventories, which exclude motor vehicle and parts, were unchanged at 0% in May. Usually retail inventories jump sharply up during the initial stages of a recession. While retail inventories have been steadily rising for the past one year, they are still much below pre-pandemic averages. The story so far has been – A build-up in inventories in late 2021 and early 2022. Which was expected to be deflationary in nature. However, US consumers kept surprising everyone with their resilience and those inventories kept getting consumed. The key event to watch is whether the US consumer shows up once again to consume at the same pace as last year!  

• Core Retail Inventories were unchanged at 0.0% m-o-m in May 2023
• Retail inventory to sales ratio chart

26th May 2023

Key takeaway: The Census Bureau’s Advance report on retail inventories showed inventories increased 0.2% m-o-m in April. However, core inventories, which exclude motor vehicle and parts, declined 0.1% in April. Retail inventories are gradually inching up in 2023. The story so far has been – A build-up in inventories in late 2021 and early 2022. Which was expected to be deflationary in nature. However, US consumers kept surprising everyone with their resilience and those inventories kept getting consumed. At around the same time last year, Target and Walmart had experienced massive share price drops due to signs of a huge inventory glut. However that inventory was gradually taken down by a resilient US consumer. Inventory levels at general merchandising companies are back to normal levels (as mentioned on the quarterly conference calls of these companies). There are even signs of retailers restocking for the upcoming fall season. Hence the recent increases in retail inventories is not entirely surprising. The key event to watch is whether the US consumer shows up once again to consume at the same pace as last year!  

• Core Retail Inventories decreased 0.1% m-o-m in Apr 2023
• Retail inventory to sales ratio chart

26th Apr 2023

Key takeaway: The Census Bureau’s Advance report on retail inventories showed a big climb of  0.7% m-o-m. It is worthwhile to narrate the same key takeaway from the previous month. Retail inventories are gradually inching up in 2023. The story so far has been – A build-up in inventories in late 2021 and early 2022. Which was expected to be deflationary in nature. However, US consumers kept surprising everyone with their resilience and those inventories kept getting consumed. Since the last few months, core retail inventories have been inching back up again. Retail inventories ex auto increased 0.4% in Mar 2023 after rising 0.3% in Feb and 0.1% in Jan. And we face the same 2022 question once again – Will the retail consumer continue to display strength or will these increasing inventories finally create a drag on prices? It is hard to ignore the facts – the pandemic era savings have gotten depleted, consumers already borrowed a fair bit in late 2022, banks are tightening lending standards in 2023. Odds are that the consumer will finally wilt! On the other hand the latest advance report on Q1 GDP once again showed a robust US consumer. PCE advanced 3.7% in Q1. That is once again far from being a wilted consumer! Retail inventory to sales ratio has been steadily increasing though still below pre-pandemic levels because of resilient sales. 

• Core Retail Inventories increased 0.4% m-o-m in Mar 2023
• Retail inventory to sales ratio chart

28th Mar 2023

Key takeaway: Retail inventories are gradually inching up. The story so far has been – A build-up in inventories in late 2021 and early 2022. Which was expected to be deflationary in nature. However, US consumers kept surprising everyone with their resilience and those inventories kept getting consumed. Since the last few months, core retail inventories have been inching back up again. Retail inventories ex auto increased 0.4% in Feb 2022 after rising 0.1% in Jan. And we face the same 2022 question once again – Will the retail consumer continue to display strength or will these increasing inventories finally create a drag on prices? It is hard to ignore the facts – the pandemic era savings have gotten depleted, consumers already borrowed a fair bit in late 2022, banks are tightening lending standards in 2023. Odds are that the consumer will finally wilt! Retail inventory to sales ratio has been steadily increasing though still below pre-pandemic levels. 

• Core Retail Inventories increased 0.4% m-o-m in Feb 23
• Retail inventory to sales ratio chart

28th Feb 2023

Key takeaway: Retail inventories are gradually inching up. The story so far has been – A build-up in inventories in late 2021 and early 2022. Which was expected to be deflationary in nature. However, US consumers kept surprising everyone with their resilience and those inventories kept getting consumed. Since the last few months, core retail inventories have been inching back up again. And we face the same 2022 question once again – Will the retail consumer continue to display strength or will these increasing inventories finally create a drag on prices? It is hard to ignore the facts – the pandemic era savings have gotten depleted, consumers already borrowed a fair bit in late 2022, banks are tightening lending standards in 2023. Odds are that the consumer will finally wilt! 

• Core Retail Inventories increased 0.2% m-o-m in Jan 23
• Retail inventory to sales ratio chart

26th Jan 2023

Key takeaway: After 3 consecutive months of falling retail inventories, the advance reading for retail inventories recorded a positive gain again (although a relatively small gain at 0.3%).  In general, inventory accumulation had been a noticeable aspect for the better part of 2022 and we had started to see that inventory being cleared in the 2nd half of 2022. However, the advance 4Q GDP release also showed a continued inventory accumulation in Q4 (which added to the GDP growth calculation). With sales visibly slowing, any further inventory glut puts downward pressure on prices and also discourages further business investment. Retail Inventories to Sales though is still significantly below pre-pandemic average levels.

• Core Retail Inventories increased 0.3% m-o-m in Dec 22
• Retail inventory to sales ratio chart

27th Dec 2022

Key takeaway: Retail inventories, in contrast to wholesale inventories have started to demonstrate a slow down in the economic cycle. Core Retail inventories (excluding auto) have fallen now for the past 2 months in a row. While this still does not make a substantial trend, it is noteworthy nonetheless. One reason for inventories falling can be a sustained take up in consumption as retailers try to offer discounts and push through the glut of inventory accumulation that has been a feature of 2022. Unfortunately, this consumption bit still results in a floor below prices and a hindrance to taking down inflation. On the other hand, falling inventories also signify a slowdown in the economic cycle as less goods and services are being produced!

• Core Retail Inventories declined 0.3% m-o-m in Nov 22
• Retail inventory to sales ratio chart

30th Nov 2022

Key takeaway: Wholesale inventories grew once again in October. But retail inventories actually fell in October. The previous month of September had recorded a small but negative drop in core inventories (retail excluding auto). In October, retail ex auto fell 0.4% and headline retail fell 0.2%. Both measures fell more than consensus expectations. One reason for inventories falling can be a sustained take up in consumption as retailers try to offer discounts and push through the glut of inventory accumulation that has been a feature of 2022. Unfortunately, the consumption part still results in a floor below prices and a hindrance to taking down inflation. 

• Core Retail Inventories declined 0.4% m-o-m in Oct 22
• Retail inventory to sales ratio chart