Is Economic Activity about to Accelerate?

There are numerous indicators we track to gauge economic and business cycle strength which we believe will help to determine the direction of investment markets.

Among the myriad, two that we watch closely are Redbook Same Store Sale and Wholesale Inventories. Based on their long history, they have proved to be valuable indicators.

Redbook has been compiled for decades and even with the migration of an increasing percentage of retail sales to online platforms, the data Redbook provides a comparison of yearly and monthly same store physical sales - trends worth watching in both timeframes.

For the last 2-3 months, Redbook sales had been solid on a year-over-year basis but have been weak on a month over month basis. We saw an acceleration in sales in 2018 that was easily the best of the recovery, while in 2019 we've settled back into the high end of the previous range. On a month over month basis we saw relatively flat and declining numbers until a few weeks, but now we're seeing growth again.

We believe that is important based on the trend and current condition of wholesale inventories.

By definition, wholesale inventories are the: Amount of unsold inventory still in the possession of the wholesaler. If wholesale inventories start to become elevated, that typically means that retailers are purchasing less because the demand for the products has decreased. Analysts look to wholesale inventory figures to see how the consumer market is performing.

If we look at 2018 we saw a big build in inventories, this was likely due to retailers trying to load up on inventory before tariffs increased their cost. Now we see that wholesale inventories are likely bottoming at the same time same store sales are strong and possibly accelerating.

We think this could lead to an increase in inventory investment which would also lead to an increase in global economic activity as companies buy products fro retailers to refill their depleted stocks.

This may not show up initially in GDP because that number is calculated by subtracting US imports and it is very likely that imports will increase to fill those inventory needs. But, regardless, that has the potential to increase the level of economic activity globally and that is good for just about everyone.