Gavekal writes ….In the short-term, US GDP growth is being boosted by businesses rushing to fill the shelves with merchandise before tariffs increase at the end of the year. This activity will likely go on in the fourth quarter too. If this pace of inventory accumulation continues, and by the end of the year companies are sitting on inventories worth 1% of GDP (two quarters of 2% annualized inventory contribution), the risk of a growth air-pocket increases early next year.
Recessions in 1949, 1953, 1960, 1975, 1980 and 1982 were all driven by inventory purges that were preceded by huge inventory builds. There have only been five quarters (out of 70 quarters) since 2000 where inventories contributed over 2% to GDP growth. To be sure, the sort of inventory building we are seeing now is driving US economic activity in the short-term, but as history suggests binges are followed by purges.
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