The problem with a high rate of inventory build is that it eventually has to go somewhere. In an actual economic “boom” that isn’t much of a concern as businesses remain relatively confident that even if inventory is high in one month it will be easily disposed, profitably, in the next. That is the dominant narrative that seems to be taken as a given surrounding the current circumstances. As released yesterday, wholesale inventories are at a “cycle” high, having risen despite slowing sales across the last few months of 2014 – the all-important Christmas disappointment.

But 2015 is supposed to be different, as there is purported to be a robust jobs market and the huge “tailwind” of lower oil prices (that may not have yet found how low is low).

Diane Swonk, chief economist at Mesirow Financial, said that if oil prices stay low, gas savings throughout the U.S. economy could reach $300 billion this year.


“It’s an enormous windfall for consumers,” Swonk said. “They thought it was temporary and it wouldn’t pan out, but as oil prices continued to go lower, there was a shift (in consumer attitude). Not only have prices fallen quite a bit, but we see it’s real money.”

The problem with that analysis is that so far it amounts to an economist’s dream. Those that expect such “an enormous windfall” are practicing that decrepit simplification of ceteris paribus. All things being equal, lower oil prices would certainly be a massive boost to consumer spending power, but only as it removes the same from energy producers. That, however, is the best case.

The broader government estimates for consumer spending were far less indicative of this assumed windfall. Instead, owing in no small part to the “boost” in healthcare spending of late, consumers have taken to saving any additional discretion.

ABOOK Feb 2015 Inventory Personal Savings Rate

But even in January, so far spending indications are not just way, way behind those “windfall” expectations, they have fallen to levels equal to last year’s “aberration”, the dreaded and economically-maligned Polar Vortex.

ABOOK Feb 2015 Inventory Gallup Daily Spending

Throughout January and February (so far through the 10th), Gallup’s estimates show a massive decline in spending activity despite all that renewed discretion from gas “savings.” Instead, as mentioned above, the last few months have looked decidedly “wintry” by comparison. Furthermore, notwithstanding the persistent claim that the economy is recovering, you can easily see in Gallup’s chart immediately above that there has been absolutely no spending growth going back to 2012 – and now despite this “$300 billion boost” spending has sunk once more to the absolute lowest ends of that woefully stagnant range.

ABOOK Feb 2015 Inventory Gallup Monthly Spending

Gallup’s monthly figures aren’t any better, as they too show just how little spending has gained during this post-2012 slowdown period. January spending for 2015 is not at all changed from January 2014 or January 2013 (both of those months were “blamed” under winter conditions). If you actually consider that there indeed have been price increases especially among household necessities, this is all the more troubling.

Spending usually drops after the holiday season, falling an average of $15 each January since 2008. Despite this year’s $17 drop, $81 is one of the highest self-reported averages in any January since 2008.

As bad as that all might turn out on its own, on the other side of the actual oil collapse the “windfall” turns to further potential decay.

A quarter of Wal-Mart’s U.S. stores are located in the nine oil-reliant states explored by Nomura, as well as a quarter of Ross Stores.


Piper Jaffray analyst Neely Tamminga lowered her “overweight” rating on Ross Stores shares to a “neutral” call “in view of what we believe may be increasingly negative data points around oil-driven economies—namely Texas.” Fifteen percent of the off-price retailer’s stores are in the Lone Star State. Plano, Texas-based department store J.C. Penney is only slightly less concentrated, with 22 percent of its locations in these regions.


A fifth of Target’s stores are located in areas dependent on the oil economy and 18 percent of off-mall department store Kohl’s locations. Sixteen percent of TJX Cos. and Macy’s stores are in areas overexposed to oil economies, with a similar store-base concentration for higher-end department store Nordstrom.

That leaves the consumer end of the economy still without any significant wage growth, an apparently higher tendency to save right now (related to the former) rather than spend any discretion, and a huge part of whatever growth has been gleaned these past few artificial years subject now to desperate reversal. And against that, inventory levels are, to be frank, obscene.

ABOOK Feb 2015 Inventory GDPABOOK Feb 2015 Wholesale Trouble InvtoSale Ratio

I don’t see how this points to anything good moving forward. The Chinese may have already received the order instructions recognizing these massive (and, again, artificially-driven) imbalances which is likely why trade has been so sparse of late (going back to last year). Along with commodity prices and credit markets, there is an accumulation of bad signals here that haven’t been present since 2006 or even 2007.

At this late point, you have to even wonder if QE5 would have anything like the same impact, as just its implementation would confirm the wastefulness of the previous four. At best, at that point, there would no longer exist any ambiguity about the obvious lack of lasting impacts aside from possibly short-term bursts of artificiality. The persistence of deficiency in household income is a proxy on true wealth creation, meaning that in the context of the 2012 slowdown it has been conspicuously absent despite all the fuss over “this time.” To that end, as to what we are seeing now in all these synchronizing warnings, it may come down to finally widespread judgment against QE, that it wasn’t even that helpful instead offering more harm through the same redistribution insanity that started all this (serial bubbles) in the first place.

There isn’t any way to look at all this and conclude that QE worked or even that the economy is in a decent place. The only way to come to that interpretation is under the future assumption that the Establishment Survey might at some point down the road actually produce a tangible impact. As all this shows too well, it hasn’t yet and there is no crack of dawn on the horizon – just the opposite.

ABOOK Feb 2015 Employ Retail Sales ChristmasABOOK Feb 2015 Employ PCE per Est Survey

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