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Income, Sales, Inventories, and GDP

Income drives sales, sales drives inventories, and all drive GDP.

There has been some concern that the slowdown in wholesale inventories gains were pointing to a slowdown in growth. In the short term, that is a likely case. In fact, we have been surprised at the level of GDP growth giving the lack of available workers (JOLTs shows roughly 1.5 million more job openings than workers available) and the front loading of inventories to beat the tariff increases.

There has been a slowdown in the wholesale inventory build, but we haven't seen any slowdown in the growth in household disposable income, retail sales or in monthly GDP growth. (see chart below)

The shaded areas in the chart show the recessions this century. They coincide with a relative flattening in each of the factors listed, but not necessary a drop in any, at least at their start. The Great Recession from late 2007 to early 2009 showed an instance (relatively rare, thankfully) where there was a substantial drop in each factor as the recession progressed. The recession in 2001 (about 6 months), showed a real drop in only wholesale inventories.

As we have posted previously, the employment picture shows little sign of weakening. Jobless claims today dropped further and were reported at 204,000. The only time they've been lower in more than 4 decades was in April of this year. We should expect household income and spending to continue to climb and with it will likely come an increase in wholesale inventory build.

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