Industrial production, real imports , real retail trade & inventories

By Spencer,

Every month the various economic indicators are released and various people comment on them– usually in isolation.

So I thought it would be informative to look at some of the key releases since the December, 2007 peak together. As the chart shows, industrial production and real imports have fallen much more than real retail sales.

At least my first reaction to this chart would be to think that this combination should generate a major decline in the I/S ratio. But, as the second chart shows all the sharp drop in industrial production and collapse in real imports has done is to keep the I/S ratio from continuing to deteriorate. The I/S ratio is barely below its cyclical peak. The normal cyclical pattern is for the I/S ratio peak to coincide with a bottoming and strong rebound in consumer spending. Consequently, the I/S ratio normally improves as much or more because sales are rising as inventories are falling. But this cycle sales are just bottoming and not rising sharply –partially because of the rebound in savings. So further improvements in the I/S ratio is likely to require continued declines in industrial production and real imports.