Type the words “Shadow inventory” into Google and you’ll get a scroll of results referencing the number of homes in the United States that are being held off the market for an assortment of readings. This shadow inventory, experts say, is a drag on the performance of the housing market, creating an overhang over the natural laws of supply and demand.
Looking at the consumer consumption figures and industrial productions figures for July, I was struck by a different kind of shadow inventory that is hanging over our economy.
When will consumers begin to spend again, people ask, looking for the signal that will show the consumer gearing up to pull us out of this recession?
When they work off the excess inventory of goods that they’ve accumulated in their lives, I think.
This is the real shadow inventory. When you look at the pattern of consumer consumption, core perishable consumables — groceries, gasoline, etc. — are begin consumed at volumes that are consistent with traditional consumer activity, adjusted for the depressed consumption associated with a soft labor market.
Consumption of discretionary consumables, like clothing, is down dramatically, driving down the financial performance of retailers, home supply providers, media and other consumer-focused companies.
While it’s impossible to measure, I believe that the rampant consumption of the mid-2000′s, coupled with the increase in the size of homes and the expansion of closet and storage space led to consumer inadvertently overstocking on a wide range of goods.
Look in a child’s closet and you’ll find dozens of t-shirts, jerseys, shoes that are hardly worn. Look in the playroom and you’ll find myriad toys and games, electronics, multiple copies of video games that came from big birthday parties and munificent holiday bounties. Go to the garage and pick through the multiple soccer balls, footballs, lacrosse balls. Look in the closet and find boxed up Barbies and Calico Critters. Mom’s closet is packed. Dad’s shed is filled with tools.
The American consumer can take a break from buying without feeling like their fundamental resources are being strained.
If you want to know when the consumer is going to gear up again, figure out how long two dozen sports shirts can last when they are worn twice a month.
During this recession, the new motto isn’t “Do Without”, it is “Do With What We Have.”
