Posts
The
Supply Chain is Rapidly Slowing Down
9
April, 2016
Not
to continue beating a dead horse, but I have a stick and the carcass
is right in front of me. The entire supply chain inside the US
economy is full agreement both on where the economy is right now and,
perhaps more importantly, how it came to be that way. Such harmony is
not atypical, as synchronicity usually defines the hard edges of any
cycle. This, however, is something else entirely, especially as it
stretches back years and confirms we are witnessing nothing like the
usual.
As
it is, this latest part or phase or whatever has already taken up
nearly two years. In terms of wholesale sales, as noted this
morning,
overall sales peaked in July 2014 – meaning nineteen months
(thru Feb 2016) of deceleration into sustained contraction. Worse and
what is probably the most concerning is that after those nineteen
months inventory is only just now starting to correct, and it is
doing so ever so gently. That suggests again slowdown without yet any
visible end. In that sense, recession might actually be the best case
since it would greatly speed up the affair in at least the
convergence and reversion of inventory to sales (though that would
still leave questions about the economic trend after it).
By
comparison, the Great Recession featured just nine months of
contraction; the whole of the dot-com recession twelve. Those were
both top to bottom, peak to trough, over and done with. In 2016, we
are very likely facing two
years and still only the beginning of
reconciliation or balance, and no idea what that might mean further
down in wider economic feedbacks and negative multipliers.
One
other noteworthy interpretation: to find the “goods economy”
including the whole of the supply chain in such joined, steady
dislocation cannot be anything but a negative comment on the whole of
the economy, services included. That starts with the fact that a
significant portion (as much as half) of the “services economy”
directly addresses the “goods economy” (retail, wholesale,
transportation, etc.). Beyond that, if there is total breakdown in
growth and advance in goods that can only mean a serious problem with
US consumers. It has already forced economists and policymakers to
completely abandon what was in late 2014 and early 2015 inarguable
recovery and success. Just because it has not, so far, acted like
recession does not propose a clean bill of health (just like it did
not, last year, recommend this was all some temporary slump worthy of
nothing but dismissal). Instead, that it has continued on for so long
suggests quite the opposite, and, again, likely worse than just
recession prospects in the long run.
The
supply chain, top to bottom:
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