What’s really driving the $45B sitting in inventory at major retailers?

The big-box retailers are sitting on $45B in inventory. But, consumer spending is up. What does it mean?

What’s really driving the $45B sitting in inventory at major retailers? on Jonathan Mills Patrick dot com
$45B in inventory, yet consumer spending is up .9%. What's up here?

Today I was listening to the All-In podcast. The particular episode is the interview of Antonio Gracias at the All-In Summit. Here we have yet another example of a successful, intelligent person calling a recession. Interestingly, he shared that we are in a recession not simply heading towards one.

We ARE In a Recession

I’ve been saying this for over a month now when I talk to people. Including my own financial advisor, professional contacts, realtors, and others in my network. If the definition of a recession is two quarters of negative gross domestic product (GDP) growth (I think I have that right), then we very well could be in a recession. That’s because last quarter, Q2 2022, had negative GDP growth. With that the case, if this quarter, as in the one we are in, ends up negative, which I believe it will, then we are in a recession. Not simply heading towards one. Sorry for all the commas in that sentence. I’m a savage. I know.

Reading the Tea Leaves

Here are some interesting things to consider.

According to reporting by the Morning Brew, Target and other retailers are sitting on $45B in inventory. A 26% increase over last year. They attribute that to changes in buyer behavior, i.e. what consumers are buying. I’m not so sure. Consumer spending was up 0.9% in April. So, people are spending money.

My guess is that it isn’t simply the wrong inventory sitting at Target. It's a combination of the wrong inventory AND the prices of things, i.e. inflation.

So, what is going to happen? Those retailers are going to have to slash prices via deep discounts. That could easily mean lower levels of financial performance in the next few quarters. Which will impact their stock price. If that happens across multiple of the big box retailers (e.g. Target, Walmart, Costco) they will drag the markets lower.

Which will contribute to…a recession.

Yep, I’m talking about it again.

Sorry for the short post today. This week is busier than any week I can remember in a long time.

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