Home > XE Currency Blog > Business sales and producer prices add to evidence that shallow industrial recession is ending


XE Currency Blog

Topics7703 Posts7748
By New_Deal_democrat May 13, 2016 11:06 am
  • XE Contributor
New_Deal_democrat's picture
New_Deal_democrat Posts: 547
Business sales and producer prices add to evidence that shallow industrial recession is ending
Since the beginning of this year, I have taken the position that the industrial portion of the economy was likely to make a rebound from its shallow recession by the end of the second quarter.  This started with last autumn's LEI's, and has since flowed through to ISM and regional Fed new orders, the flattening out of the trade weighted US$, a big decline in corporate bond yields, and a similar big decline in spreads. These are the types of data that historically - going back 100 years in some cases - precede the end of a slowdown or recession via an increase in sales and production.

Another good sign of a bottom in production - particularly in a deflationary type scenario, and again with data going back 100 years - is a  bottom in the YoY% change in commodity prices.  And with this morning's PPI report, we can update that series.
Here is the entire 100 year history:


and here is the last 2 years including today's report:

With today's advance, the YoY% change in commodity prices is only half of its decline at the worst point about half a year ago, meaning it is likely that the bottom is in.

Retail sales were also strong, up +1.3% in part due to motor vehicle sales rebounding in April from a relatively poor March.  We don't have the consumer inflation adjustment yet, but CPI is expected to be up about 0.2% when reported next week.  This makes for a strong rebound in real retail sales, likely to a new record high, another good sign (note that April is not shown on the graph below):

Finally, let's look at wholesaler and entire business inventories and sales. Note that this week's reports were for March, not April.  Remember that sales typically lead inventories at both peaks and troughs.  So we are looking for sales to advance.

And advance they did, in wholesale sales, by +0.7%.  The below bar graphs for the last 9 years show the monthly % change in both sales and inventories. to show that sales lead inventories.  In each case, the positive March sales figures are the small positive bar to the extreme right:

and in manufacturers sales, by +0.5%:

In both cases inventories went up a scant +0.1%.

The one fly in the ointment - one we already knew about - is that retailers sales in March were poor, and inventories, chiefly of motor vehicles increased:
As a result, overall business inventories increased even more in March, by +0.4%.

In summary, all of the reports this week suggest that the pattern of the last 100 years is holding true: all of the precursors to sale have turned positive, and the data suggests that sales are following suit, i.e., the shallow industrial recession is ending.

Paste link in email or IM