Wholesale Sales and Inventory Trends Mixed in September 2014. There Are Signs What Is Normal May Be Different This Month
Written by Steven Hansen
The headlines say wholesale sales improved and inventories grew. This data series is very noisy, and had been on a roller coaster of one good month / one bad month. Because of this noise, the best way to look at this series may be the unadjusted data three month rolling averages which again decelerated this month.
I am not sure on what basis this data should be judged. Sales and inventories are growing twice as fast as GDP. The unadjusted rolling averages seem a little soft this month - but it could just be a new change in wholesale and associated warehousing coming into the holiday season. [note that Econintersect analysis is year-over-year - so that the analysis is based on the change from one year ago.] The long term one year trend is showing accelerating growth while the 3 month trend is slightly decelerating. Econintersect Analysis:
- unadjusted sales rate of growth accelerated 6.0% month-over-month
- unadjusted sales year-over-year growth is up 8.9% year-over-year
- unadjusted sales (but inflation adjusted) up 7.5% year-over-year
- the 3 month rolling average of unadjusted sales decelerated 0.2% month-over-month, and up 6.4% year-over-year
- unadjusted inventories up 7.4% year-over-year (decelerated 0.4% month-over-month), inventory-to-sales ratio is 1.16 which is historically is very low for non-recessionary periods for Septembers.
US Census Headlines based on seasonally adjusted data:
- sales up 0.2% month-over-month, up 5.2% year-over-year
- inventories up 0.3% month-over-month, inventory-to-sales ratios were 1.16 one year ago – and are now 1.19.
- the market expected inventory month-over-month change between -0.3% to +0.8% (consensus 0.2%) versus the +0.3% reported.
Year-over-Year Growth – Wholesale Sales – Unadjusted data (blue line), Inflation Adjusted Data (red line)
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
Wholesale sales have now been at record highs for almost two years. Overall, the inventory-to-sales ratios (a rising ratio is an indicator of economic slowing) was below the normal range for past Septembers.
Unadjusted Inventory-to-Sales Ratio (blue line) Year-over-Year Change
Year-over-year change in the inventory-to-sales ratio is what is important – this line was showing a flat to decelerating inventory trend - a jump in the ratio which could indicate a slowing economy (one month of data is not a trend). A flat trend would indicate an economy which was neither accelerating or decelerating. A decelerating trend would indicate an improving economy.
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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