Jun 29, 2022 - Economy

Rising retail inventories point to discounts ahead

Note: Data not inflation-adjusted; Data: FactSet; Chart: Axios Visuals

After two-plus years of on-again, off-again supply chain snarls, American warehouses and store shelves are filling up with stuff — perhaps too much.

The big picture: Fresh government numbers out Tuesday showed wholesale and retail stockpiles continue to mount, even as the ferocious consumer appetite for stuff — toys, clothes, furniture, packaged goods — that emerged as a feature of the pandemic economy may be ebbing.

Context: A disappointing reading on retail sales a couple of weeks ago reinforced the view among some that surging inflation is unnerving American shoppers, and may change the buying patterns that developed during the COVID crisis.

  • Recent profit warnings from Walmart and Target, along with disappointing results from Amazon, made a similar point.
  • Retailers conceded to Wall Street that they may have misjudged the kind of goods American households would want to buy as inflation strained their budgets.
  • Target, for instance, said it ordered way too many televisions and home appliances that it'll have to put on sale.

Our thought bubble: This is yet another example of one of our favorite themes ... "The stock market is not the economy." Let's just call it TSMINTE for short.

  • If you are a shareholder in Target, it's kind of a bummer that the company screwed up and now has to put a bunch of stuff on sale at lower prices. This means your profit margins are likely to fall. (That's why when Target happened to mention this problem, its share price fell the most in a single day since the 1987 market crash.)
  • But if you're a shopper: score. Maybe that massive flat-screen you want is on sale. (Also, if you're Federal Reserve chair Jerome Powell, whose job is to pull inflation down to earth, it's good to get word that some prices are going to be discounted.)
  • In other words, something that is kind of bad for the stock market is actually kind of good for the economy. This is the essence of TSMINTE!

Yes, but: Of course, there are limits to this kind of logic. If everybody makes huge inventory screw-ups and builds massive stockpiles of products for which there is no demand, that could conceivably be a bad thing. Companies could go out of business and people could lose their jobs.

The bottom line: But for now, the surge in inventories, just as demand seems to be slowing down, is exactly what the U.S. economy needs to get a break from the inflation that's driving everybody crazy. And, you know, keep your eyes peeled for sales.

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