Thursday, December 9, 2010

Inventory Build? Nope...

Bloomberg with some faulty analysis:

Inventories at U.S. wholesalers rose more than twice as much as forecast in October as companies stocked up to meet the biggest sales gain in seven months.

The amount of goods on hand compared with sales in October held at the highest in almost a year, indicating companies may be growing confident about the outlook for demand to spur production. Recent data showed November retail same-store sales rose more than forecast, signs of momentum in the economy before the end of the year.

“The inventory cycle is maintaining its solid momentum,” said Joshua Shapiro, chief U.S. economist at MFR Inc. in New York. “With final demand showing more signs of life, it will build on itself. It means better output but also maybe more imports.”

That would be great... if it were true. The reason for the huge jump in sales and inventories was not due to a surprise pickup in the economy, but rather due to inflation (the sales / inventory levels are nominal, not real).

As an example, the chart below shows the spike in farm products and petroleum inventories. Ignoring these two line items would have resulted in a jump of 0.6%, an improvement (though ALSO largely due to inflation), but much closer to 0.5% estimate.

Source: Census