Real Sales & I/S Ratio

By Spencer

The details within the leading index provided some very interesting details.

Within the current index real manufacturing and trade sales were:

……………………….(million 2000 $)
Dec 08…………………..893,617
Jan 09…………………..895,824
Feb 09…………………..896,837

An uptick in real manufacturing and sales is generally a concurrent indicator of the end of a recession. Of Course this depends on the assumption that real sales continue to rise and that
this two month uptick is not just a false bounce within a downward trend. The rebound in oil
prices is the major factor that threatens the rebound in real sales.

Accompanying the rebound in real sales was a peaking of the real manufacturing and trade inventory/sales ratio. It peaked at 1.416 in December and was 1.415 in January and February.

A peaking of the real I/S ratio is a reasonable, but not great indicator of an end of a bear market.
The rationale behind this observation is that when the I/S ratio peaks the recession is shifting from the involuntary inventory accumulation to the inventory liquidation phase. At this point
business credit demand usually peaks and falls sharply releasing liquidity to flow into the stock market.
Interesting developments. So you pays your money and makes your bets.