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By New_Deal_democrat August 12, 2016 11:16 am
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The expansion in Indian Summer
This week's sales data, while not totally positive, confirms that while the expansion may past mid-cycle, the shallow industrial recession of 2015 probably bottomed in March and conditions continue to improve -- sort of like a bright warm sunny day in October, i.e., Indian Summer.
 
This morning gave us total business (that is, manufacturing plus wholesale plus retail) sales and inventories for June.  Inventories increased +0.2%, but this was completely overshadowed by sales, which increased +1.2% to $1.3078 Trillion, only -1% below their high of $1.320 Trillion one year ago (note: the below graph has not been updated with this morning's data, and just goes through May:
 
 
As a result of the strong sales, the inventory to sales ratio declined significantly:
 
 
During expansions, inventories typically increase, but sales rise even more.  In recessions, sales decline first, while inventories initially continue to increase.  Then both fall, and a recession ends when sales increase even though inventories continue to decline for awhile thereafter.  In mid-cycle type of corrections, the imbalance is corrected via increased sales with inventories not declining much if at all.  This is what we have seen since the end of 2014.
 
This morning's retail sales report is more current, as it described July, and was mixed:  nominal sales were flat, which means they probably declined in real terms (red in the graph below), but June sales were revised higher by +0.2% (blue):

 
All in all, sales are in good shape.
 
Finally, let me revisit a relationship I haven't looked at in a while -- that real retail sales (YoY% blue) tend to lead employment (YoY%, red):
 
 
Note that even with last the last two months' good employment reports, YoY job growth is still decelerating.  Meanwhile YoY retail sales growth also remains below its 2010-14 levels, as shown in the below close-up of the last 5 years:
 
 
This reinforces that, despite the recent sunny warm reports, the expansion remains in a generally decelerating mode, as summer fades.
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