A major shift in the economic narrative could occur

The Comprehensive narrative of markets and the economy It was one of the strong demands catering to the late show, a dynamic that caused it Inflation on the rise.

While most indicators point to a continuation of these trends, a handful of anecdotes from the past week suggest that this narrative could change.

Signs that stocks are no longer exhausted

Supply chain disruptions reflected by Low inventory/sales ratios. In fact, many companies complain that sales will be stronger Only if they can keep their shelves stocked.

according to Census office In the report published Tuesday, business inventory grew 2.0% in March from the previous month. The inventory/sales ratio improved marginally to 1.27, but remained weak compared to historical levels.

But in earnings calls last week, the retail giant Walmart And Goal He suggested that this problem might be a thing of the past for them.

“We like the fact that our inventory has gone up because a lot of it is required to be in stock at our side counters, but a 32% increase is higher than we would like. We will work through most or all of the excess inventory over the next two quarters.” – Doug McMillon, CEO of Walmart“While we expected a slowdown after the stimulus in these categories, and we expected consumers to continue to refocus their spending away from goods and services, we did not expect the scale of this shift. As I mentioned earlier, this led us to carry a lot of inventory, particularly in the huge categories, including Kitchen appliances, televisions, and outdoor furniture.”— Brian Cornell, CEO of Target

This is very interesting Schedule From Bloomberg’s Kriti Gupta shows how aggressively some of the major retailers are increasing their stocks.

This phenomenon in which firms shift from under-supply to over-supply is calledwhip effect. Joe Weisenthal from Bloomberg explain:

“Demand booms. Firms demand aggressively or even over-demand to make sure they have stocks. Then demand shifts. Suddenly fears of shortages and empty shelves turn into overstocking, oversupply and inflation.

There are two very important things to note about what’s going on with these retailers.

First, they were touched by the fact that Consumers spend less money on tangible things and more money on intangible experiences. In fact, United Airlines confirmed Just as much on Monday when Review her summer travel predictions.

Second, this has nothing to do with any unexpected weakness in consumer spending. In fact, both Walmart and Target reported better-than-expected store sales growth. The latest monthly retail sales report from the Census Bureau confirmed the consumer strength of the economy as a whole as sales Jumped to a new record in April.

“[Customers’] The ability to spend to benefit from it High savings ratesAnd high employmentand healthy wage growth Cornell said the goal.

Signs that delivery times are improving

With the recovery of demand for goods, it took Longer and longer to deliver orders.

However, these delivery times seem to be getting shorter.

According to manufacturing surveys from Federal Reserve Bank of New York And Philly VidIndicators of supplier delivery times in May fell to their lowest levels in months.

Despite this, both surveys also indicated that industrial activity is weakening in the mid-Atlantic. Therefore, it is possible that these shorter delivery times are a function of slowing demand rather than improvements in the supply chain.

Evidence of an abating labor shortage

Walmart, the largest private employer in the United States, echoed what was recently said by Amazon, the country’s second-largest private employer.1:

“Due to the rapidly declining number of omicron variant cases in the first half of the quarter, more of our partners who were on COVID leave returned to work faster than we expected. We hired more staff at the end of last year to cover those who are on leave, so we ended up weeks of redundancy.” – Doug McMillon, CEO of Walmart“With the advent of the Omicron variant in late 2021, we have seen a significant increase in our Vacation Fulfillment Network staff, and we continue to hire new staff to cover these absences. As form recedes in the second half of the quarter and employees return from furlough, we quickly moved from understaffing to increasing The number of employees, which led to a decrease in productivity. ” Brian Olsavsky, Chief Financial Officer, Amazon

These terms are very similar, although they do reflect phenomena unique to large retail.

However, at the same time, there was a capture in the tales Hiring freezes and layoffs in the tech industry.2 Tuesday, The Hollywood Reporter first mentioned That Netflix will allow 150 employees to leave.

One of the most popular ways to track the health of the labor market is a statistic Initial claims for unemployment insurance benefits, which is reported weekly. While the level of claims remains near a 50-year low, there has been a slight uptick in recent weeks.

In the week ending May 14, initial claims rose to 218,000, up 21,000 from the previous week. It is the highest level since January.

(Source: DoL)

(Source: DoL)

What could this mean for inflation

With the disruptions in the supply chain lasting longer than many expected, the resulting shortage has caused inflation to spike more than many expected.

Thus, the Federal Reserve responded by monetary tightening. They believe that tighter financial conditions should calm the labor market, which should dampen wage growth, which in turn should reduce demand to a level more in line with supply. This should eventually cool inflation.

The presence of bloated inventories and shorter delivery times indicates that supply chains are no longer an issue. Hiring freezes and layoffs suggest that wage growth must cool. Assuming these anecdotes turn into economic trends, inflation should drop soon after.

zoom out

Once again, the headlines from last week are anecdotal, and the moves in economic data are pretty small.

Then again, most of the big trends start out as anecdotes and small shifts in the data.

Like Economy story unfold, we will closely monitor layoffs and initial claims, the examsAnd Supplier delivery timesAnd Delayed ordersAnd, of course, all the different ways to report inflation.

More from TKer:

rear view 🪞

📉 🐻 Stocks continue to decline: The S&P 500 fell 3.0% last week, posting its seventh consecutive week of losses. The index is now down 18.7% from its Jan. 3 closing high at 4,796.56. The S&P also touched an intraday low of 3,810.32 on Friday, 20.9% below its Jan. 4 high of 4,818.62. For more information on market volatility, read This is amazing And This is amazing. If you want to read in bear markets, read on This is amazing.

🦅 Powell is tough: Federal Reserve Chairman Jerome Powell warned about it central bank efforts to cool economic inflation It may lead to a bumpy road in the economy. “There may be some pain involved in restoring price stability,” he said He said at a Wall Street Journal event on Tuesday.

🇺🇸 Economic data records: Retail sales rose to a new record in April. Industrial production activity also rose in April to a new record high. For more information on these reports, read This is amazing.

🛍 Retail profit whiff: As discussed above, Walmart And Goal Both recorded good sales growth. However, both companies have struggled with rising costs and disappointing their profits as a result. Walmart shares fell 11.3% on its news. Target stocks collapsed 24.9%.

📈 Mortgage rates drop from their highest levels: The average fixed interest rate for a 30-year mortgage fell to 5.25% from 5.30% in the previous week, according to Freddy Mac.

🏘 Home Sales CouponPreviously owned home sales fell 2.4% in April to an annual rate of 5.6 million units, according to National Association of Realtors (NAR). “High home prices and sharply higher mortgage rates have dampened buyer activity,” said NAR Chief Economist Lawrence Yun. “It appears that more declines are imminent in the coming months, and we will likely return to pre-pandemic home sales activity after the marked rise over the past two years.”

up the road 🛣

These days, it’s all about what happens with inflation. Therefore, all eyes will be on Friday’s release of the core PCE price index, the Fed’s preferred measure of inflation. Economists estimate that the measure rose 0.3% in April from the previous month, reflecting a 4.9% rise from the previous year.

The durable goods orders report for April will be released on Wednesday. The orders related to business investment were at A Record high in March. Will the April report be just as strong?

1. These ranks come from Fortune 500 . List.

2. layoffs He was tracking several layoffs in technology and startups.

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