Inventory Correction Ahead? Take 2

[OlympicBrian]

Inventory Correction Ahead? Take 2
12/01/10
By Dan, Seattle

Recently, I posted a little piece from stock market "bear" SocGen's Albert Edwards, who claimed "The Inventory Boom Is About To End And Crush U.S. GDP." Sounds a bit severe, huh?

Now, he put up an interesting graph showing ISM US inventory build vs. new orders, and it showed a big gap, with inventory out-pacing orders--leading by six months (linked below.) I wondered about it at the time, but haven't really seen a signal of his prediction until recently. Specifically, the new durables orders came in for October way below forecast:

"Durables orders in October fell 3.3 percent, following a 5.0 percent spike the month before. The October figure came in notably below the median market forecast for a 0.1 percent decline. Weakness was broad based but led by transportation. Excluding transportation, durables declined 2.7 percent after rising 1.3 percent in September."

Here is the original story, from a few weeks back:

"The U.S. economy has the potential to slip back into recession even though many of the cyclical drivers are already rock bottom, according to Albert Edwards.

Edwards says that, even though new home construction and consumer durables are already at lows, the U.S. economy has a lot of GDP growth left to lose. This is because the U.S. consumer has yet to come back and, right now, the economy's main driver, inventory rebuilding, is about to come to an end."

http://www.businessinsider.com/albert-edwards-inventory-boom-end-2010-11#ixzz16EdBSvxv

But today (12/01), November's National ISM report came in playing out what the original story suggested--that new ISM orders would shrink as inventories grew:
Inventories 56.7 53.9 +2.8 Growing Faster 5
and
New Orders 56.6 58.9 -2.3 Growing Slower 17
http://www.ism.ws/ismreport/mfgrob.cfm

Based on the big drop durable in orders--and today's ISM numbers--could we really be in for an inventory correction? Anecdotally, it is being said that retailers may have ordered too much for Christmas. This can't bode well for profit margins. And Black Friday sales were poor, up a tiny 0.3 percent, perhaps due to low margins and high inventory.

Comments?

[Sherman A1]

1. Interesting

I don't know about retailers ordering too much for Christmas or not. I haven't been out doing much shopping..... It's pretty much all gift cards and such for everyone.

My Spouse did say that when she went to Target recently she thought the shelves looked a little thin for this time of year. Could just have been her impression or perhaps not... Just an observation.

[jotsy]

2. My know how here not likely up to snuff!

But it would seem the back log of inventory has to weigh on them sooner or later.

I'm told among the most tamper free figures there are available to measure the economic health is the Baltic Dry Index. Thought I'd post a link just in case you're not already familiar.
<http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm>

[OlympicBrian]

3. Nice, the base BDI graph would seem to confirm nt

[OlympicBrian]

4. kick