The buildup in inventories, which is not wanted, is due to weak demand of durable goods. The most recent durable goods report showed this very clearly with the bounce in demand from “Hurricane Sandy” temporarily halting the decline. That bounce is likely complete.
However, the big driver in the report came from personal spending on services such as financial services, healthcare, etc., but most importantly construction services for rebuilding efforts in the Northeast. The chart below shows PCE broken down into its subcomponents. The gigantic jump in service spending is what clearly drove the bulk of the most recent GDP report.
The chart below shows PCE broken down into its subcomponents. The
gigantic jump in service spending is what clearly drove the bulk of the most
recent GDP report.
The important thing to notice here is the durable goods, non-durable goods and goods in general all showed weakness. This does not bode well for spending going forward and supports the idea that the recent bump in likely a “effect” fueled anomaly that is unsustainable longer term.