We can only imagine the upward revisions to GDP that will occur due to the largest mal-investment-driven wholesale inventory build in over 2 years. The 1.4% MoM gain is over 4x the expectation and biggest beat since Q4 2011, when – just as now – a mid-year plunge was met by a rabid over-stocking only to see the crumble back into mid 2012. As we noted previously, 56% of economic “growth” this year was inventory accumulation (cough auto channel stuffing cough) and this print merely confirms “hollow growth” continues.
So how does inventory hoarding – that most hollow of “growth” components as it relies on future purchases by a consumer who has increasingly less purchasing power – look like historically? The chart below shows the quarterly change in the revised GDP series broken down by Inventory (yellow) and all other non-Inventory components comprising GDP (blue).
But where the scramble to accumulate inventory in hopes that it will be sold, profitably, sooner or later to buyers either domestic or foreign, is seen most vividly, is in the data from the past 4 quarters, or the trailing year starting in Q3 2012 and ending with the just released revised Q3 2013 number. The result is that of the $534 billion rise in nominal GDP in the past year, a whopping 56% of this is due to nothing else but inventory hoarding.
The problem with inventory hoarding, however, is that at some point it will have to be “unhoarded.” Which is why expect many downward revisions to future GDP as this inventory overhang has to be destocked.