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U.S. Economy - No Inventories Buildup Indicating No Slowdown

Tim Worstall profile picture
Tim Worstall


  • A usual and typical marker of an economic slowdown is inventories build up. This isn't happening as yet.
  • The intuition is obvious. It's only when people stop buying, the warehouses fill up, that producers stop producing.
  • We can see no sign of this, so the assumption has to be that there is no slowdown in the U.S. economy as yet.


Assuming that we still have the business cycle - something that we do assume - our grand question is, well, when's the next turning point? A guide to the expansion faltering being when inventories start to blow out, for logically when the warehouses fill up with things unsold, then people are buying less than they were.

The underlying idea being that producers of things have highly imperfect knowledge of what people wish to buy out there, there's a certain amount of guessing going on. The only real knowledge comes when people do buy something, but of course, that only really arrives, that knowledge, when people buy the thing. But, of course, things must be made before people buy them. So, we have inventories of things already made and waiting to be bought.

If there's a significant change in buying, then that's where it will first turn up - in the size of those inventories. If, say, those balloon out, then that means consumption is falling for that's clearly a sign that what has been made to meet past demand is in excess of current demand. Or, the other way we can make the same point, demand has fallen. At which point, producers will make less and then, here we are, we're in a recession.

Thus, keeping an eye on the monthly inventories numbers is a good idea. Currently, for all the worries about coronavirus, we see absolutely no sign of such a turning point in the economy.


(Advance Economic Indicators from Census Bureau)

As a note, I pay very little attention to the trade numbers. Partly on Adam Smith's grounds that worrying about the balance of trade is a silly thing to do, partly because it's a monthly number that bounces around to no great import (sorry), and

This article was written by

Tim Worstall profile picture
Tim Worstall is a wholesaler of rare earth metals and one of the global experts in the metal scandium. He is also a Fellow at the Adam Smith Inst in London and an writer for a number of media outlets, including The Times (London), Telegraph, The Register and even, very occasionally indeed, for the WSJ. This account is linked with that of Mohamad Machine-Chian: https://seekingalpha.com/user/52914142/comments

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (5)

Stock market is In panic mode ahead of consumers. In fact, people stock up necessities (food, drinks and toilet papers.....) for the potential crisis. Therefore, what you see on the inventory # is only looking at rear view mirror (Costco’s data look great).

Let technical charts be your guide. Don’t anticipate bounce - many top performing managers got burn lately (they are programmed to buy on dips).

This virus is tricky and even CDC can’t figure out initially. How can we know?

We need cures/vaccine (10-20 billions of research $$$ can do a lot more) compared to 4-5 trillion dollars of the market cap wiped out.
Our president needs to do more (not every problem is a financial problem), not in denial. Accept the challenge, we will win, but not just throwing $$$ at financial market.

Good luck and take care
imogen8 profile picture
Supply chains are interrupted, so supply is low. How can warehouses fill up when they aren't producing goods in the first place?
Wiekierc profile picture
And the service sector doesn't keep their "product" in a warehouse. How much of our economy is tied to services?
Hungry for Knowledge profile picture
Warehouses are either about to fill up....or empty due to supply shocks.
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