After falling by nearly 7% year-over-year in July, the third worst drop since 2009, wholesale sales expanded by nearly 7% in August, the highest gain in almost two years. As with factory orders, however, there are seasonal effects to consider given these are unadjusted comparisons. Blended together, cumulatively wholesale sales for both July and August were down about 1%. Seasonally-adjusted, wholesale sales were up in August just slightly more than they were down in July. Year-over-year adjusted, sales were flat.

Wholesale inventory actually declined year-over-year (NSA) in August. That was the first negative annual change since June 2010. As the sales decline has moderated this year, the drag of inventory has as well. Clearly the supply chain is adjusting to the new environment of this phase of the “rising dollar.” Despite more outward caution about inventory, and thus economy, overall levels still remain seriously elevated.

abook-oct-2016-wholesale-sales-inv abook-oct-2016-wholesale-sales-non-petro-inv-to-sales

Nowhere is that more evident than autos, as fleet sales have been greatly affected by slowing in 2016 leaving especially the wholesale level to so far make up for it. The inventory-to-sales ratio (SA) was down only slightly from July, above 1.80 for ninth time in the last eleven months.

abook-oct-2016-wholesale-sales-mv-inv-to-sales abook-oct-2016-wholesale-sales-mv-inv-to-sales-august

The shift in overt monetary conditions since February may account for what appears to be less negative economic pressure. Again, as with factory orders, a more stable environment in finance as well as prices may have had a more immediate effect on the overall condition for wholesalers. Non-petroleum wholesale sales continue to be flat for going on two years, suggesting marginal variations (at least here) that are predicated on energy and oil production. The same can be said of factory orders where production of capital goods for the energy sector was up sharply in August from earlier this year (though down much more compared to last year).

abook-oct-2016-wholesale-sales-sa abook-oct-2016-wholesale-sales-non-petro-sa

That would suggest the overall economy beyond energy, as represented by wholesale sales and inventory, is still stuck not quite like recession but also nothing like growth. As with the payroll reports of late, it is a curious back and forth that ends up going nowhere – and taking a huge and costly amount of time to do it. The true cost of this stagnation is not measured by whether or not there is a positive or negative number for any account, but where that measure of activity is in relation to what actual growth would look like.

From this perspective, we see again the huge cost of time that has surely been incorporated in many unobservable ways, now being explicitly figured as slowing or even falling inventory levels. We are measuring this economy all wrong as if it were normal, where positive numbers are analyzed and accepted as consistent with sustained growth. Wholesale sales especially over the last two years should disabuse any such notion. I wrote more than two years ago during the summer of 2014 when “full employment” and “liftoff” fever were starting to catch on that it was all based on this backward, ill-suited perspective of positive numbers stripped of relevant context:

A full part of cyclicality, and the piece mostly forgotten or cast aside for expediency, is time. Though it is used as an axis in graphical representations, it is most often the one factor totally ignored despite its central role. The plucking model shows, actually, that compounding and time are central to the nature of economic advance, which is one reason why symmetry and maintaining trend is so very important…

The problem is those positive numbers, as most everyone simply assumes extrapolation. In that manner, what passes as a pause in further erosion looks to be, for the eternally hopeful and optimistic, the beginning of sustainability. But a full recovery, conforming to the actual definition, is never really questionable since the underlying trend remains both valid and visible. Further, the seeds of recovery are not driven by guesses about monetarism and negative interest rates but by the creation and drive toward true wealth.

Wealth has been conspicuously absent this past decade (and beyond), being quite intentionally substituted with paper figures like record stock prices. For economists this is just as good, thinking stock prices and some “wealth effect” are substitutes for actual value and productive capacity. The drag of time and the costs associated with that drag demonstrate the absence of wealth, a huge factor in the eurodollar decay itself (one example is the collateral shortage; a truly sustainable economy manufactures its own private collateral rather than being dependent solely on gov’t bonds or financial tricks).

From the bottom-up, the economy appeared to be growing if frustratingly slow. From the top-down, slow growth is of the same type as contraction especially over longer periods. Unusually slow growth is an economic cost though we don’t measure it that way (we really should start).

abook-oct-2016-wholesale-sales-cost-2014

In terms of just wholesale sales, over the past two years plus one month total sales have been $11.1 trillion. The contraction during this “rising dollar” therefore cut about $1.1 trillion off that part of the economy; what sales would have been had positive growth been more consistent with what was exhibited before mid-2014. Sales in August 2016 were $444.3 billion (SA) but “should” have been closer to $500-$510 billion. Month after month this deficiency adds up in ways beyond closer inventory scrutiny.

In reality, however, those are only the partial costs of the past two years. As I wrote in 2014 when growth rates were more consistently positive if at lower levels than historically, the economy had already taken/exhibited serious damage from the 2012 slowdown. Then, as now, economists viewed positive numbers as “not recession” and therefore consistent with growth of at least a delayed full recovery. In reality, again in ways that aren’t properly measured, the attrition was adding up and thus casting a far different light on the economic climate of 2014, changing drastically how it should have been interpreted.

abook-oct-2016-wholesale-sales-cost-2012

Had the recovery continued uninterrupted past early 2012, wholesale sales in August 2016 would have been somewhere around $730 billion; that’s an economy that is nothing like $444.3 billion. Between 2012 and the middle of 2014 these costs were accumulating in terms of time but because economists saw positive numbers perhaps picking up slightly they assumed bottom-up that it was “liftoff.” It wasn’t; it was just variation of the intensity of these negative factors, pressures, and costs.

My conclusion then using this perspective fits very well with the “questionable” economy we find still today:

The more this goes on the more it should be apparent that cyclicality is actually missing here. This goes way, way beyond even orthodox admission to “structural issues” as it defines a wholly separate paradigm. It should be by now sinking in that this was never recession to begin with, but rather depression. Of course, simply using that word conjures terrifying imagery, but it has more and valuable practical meaning beyond scare tactics.

These negative numbers are actually more negative than what I have presented above; I haven’t highlighted the costs properly incorporating the Great “Recession” itself and the hole it left in economic function. The idea of “depression” too often elicits an emotional response when in reality it has little to do today with the 1930’s and everything to do with re-orienting how we see and evaluate economic function.

Low growth and positive numbers are fine in isolation so long as they are truly temporary (meaning not just classified as such by some unskilled but credentialed official). That was the problem of QE in that it acted like a filter through which all negative indications would be either rationalized or ignored, as was the case of low growth that instead lingered year after year no matter how much “stimulus” was applied. From the traditional cyclical perspective, low growth combined with “stimulus” meant that the recovery was delayed but still coming; recognizing depression, however, meant recognizing there was no recovery coming as the rising costs of underperforming both confirmed that expectation (especially in contrast to the euphoria of 2014) while raised the stakes beyond just malfunctioning economics.

If the Great “Recession” had been a recession, wholesale sales as every other economic outlet would have been returned to the pre-2008 trend by an actual, inarguable recovery. Had that happened, wholesale sales in August 2016 would have been something like $825 billion, almost twice what was just estimated. The economy is not actually growing, it is in this instance about half of what the whole global economy needs. Recognizing this for what it is explains why so much of the world seems ready to explode in anger – economists have been for almost a decade using the wrong standards to declare a depression a recovery.

abook-oct-2016-wholesale-sales-cost-2007