An interesting observation from an Agence France Presse report over the weekend:
David Rosenberg, chief North American economist at Merrill Lynch . . . said that a big chunk of [US] economic growth is going into inventories, because sales are soft, making the outlook even gloomier. Rosenberg sees the sluggish trend continuing.As the General stated two weeks ago, it is still a bit early to be down on the US economy due to the growth in inventories. Total business inventories (SA) growth did outpace total business sales (SA) growth in two of the last three months (April and June 2004), and both by quite hefty margins (+0.76% in April; +0.86% in June), but this is a relatively recent phenomenon. If production keeps exceeding consumption for the fall as well, then start to worry.
"We stick to our three percent real GDP growth call for the third quarter -- the consensus is still very close to four percent -- as the inventory-sales mix in the second quarter was not the sort of configuration that typically leads to a meaningful acceleration in the pace of economic activity," he said.
The July numbers should be particularly enlightening. All evidence suggests sales rebounded ably in July (thanks in part to a low bar from June), but if inventories outpaced sales in even this robust a month, Rosenberg has ample cause for concern. The July numbers come out on September 15. Stay tuned.