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posted on 10 February 2015

Wholesale Sales and Inventory Data Presents a Mixed Picture in December 2014

Written by Steven Hansen

The headlines say wholesale sales declined and inventories grew. This data series is very noisy, and continues on a roller coaster of good and bad data. Because of this noise, the best way to look at this series may be the unadjusted data three month rolling averages which decelerated for the fourth month in a row. The data for wholesale trade was terrible this month but it could have been caused by a changing seasonal demand.

The unadjusted rolling averages seem a little soft this month - but it could just be a new change in wholesale and associated warehousing for the holiday season. [note that Econintersect analysis is year-over-year - so that the analysis is based on the change from one year ago.] Econintersect Analysis:

  • unadjusted sales rate of growth decelerated 4.5% month-over-month (last month was a revised 4.9%)
  • unadjusted sales year-over-year growth is down 0.6% year-over-year
  • unadjusted sales (but inflation adjusted) down 2.3% year-over-year
  • the 3 month rolling average of unadjusted sales decelerated 1.1% month-over-month, and up 4.1% year-over-year (September was a very high growth month which affected the averages).

Year-over-Year Sales - Unadjusted (blue line), Unadjusted but Inflation Adjusted (red line), 3 month Rolling Averages (yellow line)

z%20wholesale1.PNG

  • unadjusted inventories up 7.1% year-over-year (accelerated 0.2% month-over-month), inventory-to-sales ratio is 1.29 which is historically is well above non-recessionary periods for Octobers.

US Census Headlines based on seasonally adjusted data:

  • sales down 0.3% month-over-month, up 2.4% (last month was reported 4.3%) year-over-year
  • inventories up 0.8% month-over-month, inventory-to-sales ratios were 1.16 one year ago - and are now 1.21.
  • the market expected inventory month-over-month change between 0.0% to +0.7% (consensus 0.1%) versus the ---% 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.

Wholesale Sales - Unadjusted - $ Millions

wholesale_2005on.PNG

Wholesale sales have now been at record highs for almost two years - until this month where they contracted year-over-year. Overall, the inventory-to-sales ratios (a rising ratio is an indicator of economic slowing) was abnormally high relative to past Novembers.

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 - and this month it jumped up - 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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