Wholesale Sales and Inventories Grew in March 2014

Written by Steven Hansen

The headlines say March 2014 wholesale sales and inventories grew – and our analysis essentially agrees. This data series is very noisy, and has been on a roller coaster of one good month / one bad month. However, consider that the three month rolling averages for unadjusted sales is decelerating, and the unadjusted sales to inventory ratios are above the range for non-recessionary periods (but lower than last year).

Econintersect Analysis:

• unadjusted sales rate of growth accelerated 2.9% month-over-month
• unadjusted sales year-over-year growth is up 6.2% year-over-year
• unadjusted sales (but inflation adjusted) up 4.4% year-over-year
• the 3 month rolling average of unadjusted sales decelerated 1.0% month-over-month, and up 4.3% year-over-year
• unadjusted inventories up 6.0% year-over-year (accelerated 1.2% month-over-month), inventory-to-sales ratio is 1.18 which is historically is very high for non-recessionary periods for Marchs.

US Census Headlines:

• sales up 1.4% month-over-month, up 4.9% year-over-year
• inventories up 1.1% month-over-month, inventory-to-sales ratios were 1.19 one year ago – and are now 1.18.
• the market expected an inventory change of 0.2% to 1.0% (consensus 0.5%) versus the headline 1.1% growth.

Year-over-Year Growth – Wholesale Sales – Unadjusted data (blue line), Inflation Adjusted Data (red line), and 3 month Rolling Average of Unadjusted data (yellow line)

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The short term year-over-year trend for sales is now fluctuating in a narrow range after an improving period in the first half of 2013.

Wholesale Sales – Unadjusted – $ Millions

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Wholesale sales have hit new monthly record highs 33 of the last 37 months (using current dollars). Overall, the inventory-to-sales ratios (a rising ratio is an indicator of economic slowing) above the normal range for past Marchs.

Unadjusted Inventory-to-Sales Ratio (blue line, left axis) and Year-over-Year Change Unadjusted Inventory-to-Sales Ratio (red line, right axis)

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The red line showing year-over-year change is what is important – this line seemed to show a flat inventory trend.

Caveats on the Use of this Index

The data in this index continues to be revised up to 3 months following initial reporting. The revision usually is not significant enough to change the interpretation of each month’s data in real time. Generally there are also annual revisions to this data series.

The methodology used by US Census to seasonally adjust the data is not providing a realistic understanding of the month-to-month movements of the data. One reason is that US Census uses data over multiple years which includes the largest modern recession which likely distorts the analysis. Further, Econintersect believes there has been a fundamental shift in seasonality in the aftermath of the Great Recession of 2007 – the New Normal.

Econintersect determines the month-over-month change by subtracting the current month’s year-over-year change from the previous month’s year-over-year change. This is the best of the bad options available to determine month-over-month trends – as the preferred methodology would be to use multi-year data (but the New Normal effects and the Great Recession distort historical data).

This series is NOT inflation adjusted. To make this adjustment Econintersect uses the PPI – subindex Total Wholesale AWHLTRAWHLTR.

As economic indicators go, wholesale sales and inventories are poor at spotting economic problems. Wholesale data did not start contracting during the Great Recession until October 2008. The only portion of wholesale trade data which seems to correspond to general economic conditions is wholesale trade employment.

All Employees – Wholesale

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