"You can't sell from an empty wagon," said my boss Terry Doyle as we were discussing our holdings of US Agency bonds on the trading desk. He was right, at that time in the mid-1990s one generally had to have inventory on hand to have something to offer for sale.
Today there is less need to have as much inventory on hand given the increased rate of delivery and modern inventory control. But, goods still need to be held and get delivered as individuals rarely buy directly from the factory, they almost always go through some sort of 'middleman', be it a store or the internet.
In the charts below we see US Retail Sales (top panel) and US Wholesale Inventories (bottom panel). Sales are through November and Inventories through Oct. This holiday season has been reported thus far as 'record-breaking' so we should expect that Sales will rise at least for another month.
On Inventories, we see an increased build rate starting in mid-2018, shortly after the tariff talk got serious. We also see that in late 2018, retail sales faltered for a few months as the stock market corrected and many wrongly proclaimed a recession was near. The inventory build rate continued until early/mid-2019 and has then stopped. At the same time Sales regained momentum and even accelerated slightly.
If one believes the adage 'you can't sell from an empty wagon' it would seem that an increase in Wholesale Inventories buildup can't be too far away. An inventory buildup means increased manufacturing output and trucking/freight shipments. We expect to see both increasing as early as Jan 2020. In which case, the timing of a trade deal with China and the ratification of the USMCA with Mexico and Canada would be very helpful.
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