Restocking continues, consumers become more frugal

Prod Aug09.jpgThere are clear signs in the above chart that the inventory cycle has turned positive again, as customers restock. Globally, data from the American Chemistry Council shows chemical production now down 10.5% versus last year, after being 13.4% down in March, in line with signs that GDP in the west is now stabilising.
But will we go back to the levels of demand seen in the 2003-7 Boom period? This seems unlikely. Moody’s, for example, has produced interesting new data that shows the average US household’s wealth has reduced from a peak of $540k to $421k in Q1. And Moody’s note that consumers are becoming more frugal, due “to a general uneasiness about the future”.
Of course, some argue that Asian consumers may be more extravagant. But total Asian consumption is worth just $5trn, half that of the USA. It is hard to see them spending enough to make up for slowing western growth, especially with 50% of Asia’s GDP based on exports.

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