Retail Soft, Inventories Too High

Retail sales were soft in the past few months:


However, keep in mind the cold weather we had in February, which can put a significant damper on spending–temporarily.  We may get some weather-related recovery in March, but gasoline prices going back up won’t help non-gas sales.  I don’t see the consumer bailing out now, but the data suggest a higher level of caution.  Perhaps all the stories about recession are having their effects.  Here’s a cool chart showing blogging about recession (hat tip to Menzie Chinn at Econbrowser.)

That spike up occurs on February 28, the day the Alan Greenspan’s speech was reported.  You know, the one in which he said that a recession was possible.

We also learned today that business inventories came down a touch, but not enough to work off the excess:


Key point here: inventories relative to sales have a long-term downward trend, due to better information technology (scanners, just-in-time inventory practices, etc.)  The uptick we had starting in the fall of 2006 needs to be worked off–unless business suddenly decide to backtrack on their inventory management practices.  This bodes ill for manufacturing activity for a few more months at least.

Business Strategy Implications:  Consumer spending is likely to grow at a modest pace, and manufacturing activity has more decline to come in the coming months.  Businesses should be cautious their own inventories.  Companies that make intermediate inputs used by other manufacturers need to be especially careful, given the inventory overhang.