Stockpile Liquidation Event Could Hurt U.S. Economy, Analysts Warn

In a new report, Deutsche Bank analyst Joseph LaVorgna discusses an alarming trend in U.S. stockpiles. According to LaVorgna, the ratio of business inventories to sales has climbed to 1.40, its highest level since May 2009.

Why does this number matter? LaVorgna explains that there are two potential outcomes to the situation.

“With the ratio of business inventories to sales elevated, the issue for market participants is how this series will return to its longer-term trend. Either the growth in inventories has to meaningfully slow or the rate of sales has to meaningfully increase (or both).”

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So far, there is no evidence of either of these solutions happening anytime soon. In fact, LaVorgna notes that the increase in the inventory-to-sales ratio has even accelerated in the last 18 months.

Deutsche Bank anticipates that inventory destocking will subtract about 1.0 percent from U.S. Q1 GDP growth.

Today’s jobless claims number came in at 265,000, slightly below consensus expectations of 268,000. The S&P 500 is trading mostly flat in Thursday’s session after a Wednesday boost from the FOMC decision not to raise interest rates as previously planned. So far this year the SPDR S&P 500 ETF Trust SPY is down 0.2 percent.

Disclosure: the author holds no position in the stocks mentioned.