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posted on 11 December 2015

October 2015 Business Inventories Improved But Sales Still Bad.

Written by Steven Hansen

Econintersect's analysis of final business sales data (retail plus wholesale plus manufacturing) shows unadjusted sales declined compared to the previous month - and there was a decline of the rolling averages. Even with inflation adjustments, business sales are in contraction. The inventory-to-sales ratios remain at recessionary levels.

Econintersect Analysis:

  • unadjusted sales rate of growth decelerated 2.1 % month-over-month, and down 4.0 % year-over-year
  • unadjusted sales (but inflation adjusted) down 2.1 % year-over-year
  • unadjusted sales three month rolling average compared to the rolling average 1 year ago decelerated 0.4 % month-over-month, and is down 3.1 % year-over-year.

Unadjusted Business Sales - Unadjusted (blue line), Unadjusted but Inflation Adjusted (red line), and 3 month rolling Average (yellow line)

  • unadjusted business inventories growth shrunk 0.2 % month-over-month (up 2.1 % year-over-year with the three month rolling averages improving), and the inventory-to-sales ratio is 1.38 which is at recessionary levels (well above average for this month). However, these ratios may be distorting the real picture as inventory values may not be properly revalued for inflation (first in, first out).

US Census Headlines:

  • seasonally adjusted sales down 0.2% month-over-month, down 2.7 % year-over-year (it was reported down 2.8 % last month).
  • seasonally adjusted inventories were unchanged month-over-month (up 2.0 % year-over-year), inventory-to-sales ratios were up from 1.31 one year ago - and are now 1.38.
  • market expectations (from Bloomberg) were for inventory growth of 0.0 % to 0.3 % (consensus 0.1 %) versus the actual of -0.2 %.

The way data is released, differences between the business releases pumped out by the U.S. Census Bureau are not easy to understand with a quick reading. The entire story does not come together until the Business Sales Report (this report) comes out. At this point, a coherent and complete business contribution to the economy can be understood.

Today, Econintersect analyzed advance retail sales for November 2015. This is final data from the Census Bureau for September 2015 for manufacturing, wholesale, and retail (see graphs below):

Year-over-Year Change Manufacturing New Orders - Unadjusted (blue line) and Inflation Adjusted (red line)

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

z%20wholesale1.PNG

Please see caveats at the end of this post on the differences between Econintersect data analysis methodology and U.S. Census.

Business Sales - Unadjusted - $ millions

Sales were lower than last year.

Year-over-Year Change Business Sales - Unadjusted (blue line) and Inflation Adjusted (red line)

Using inflation adjustments, analysts can more clearly count the quantity of business transactions. Inflation adjusted data decelerated.

Many analysts pay particular attention to inventories in this report. Inventories, expressed as a ratio to sales. The current situation suggests the economy was contracting.

Seasonally Adjusted Business Inventories Year-over-Year Change - Inventory Value (blue line, left axis) and Inventory-to-Sales Ratio (red line, right axis)

The takeaway from the above graph is that overall inventories rate of growth is now declining. The above graph is the headline view of inventories. Econintersect uses unadjusted data to look at inventories. The graph below shows the growth or contraction of the inventory-to-sales ratio year-over-year. When the graph below is above zero, inventories are building faster than sales.

Unadjusted Inventory-to-Sales Year-over-Year Change

Caveats On Business Sales

This data release is based on more complete data than the individual releases of retail sales, wholesale sales and manufacturing sales. Backward revisions are slight - and it is unusual that the revisions would cause a different interpretation of a trend analysis.

The data in this series is not inflation adjusted by the Census Bureau - Econintersect adjusts using the appropriate BLS price indices relative to the three data series.

  • CPI less shelter for retail sales
  • PPI subindex OMFG for manufacturing
  • PPI subindex PCUAWHLTRAWHLTR for wholesale sales

As in most US Census reports, Econintersect questions the seasonal adjustment methodology used and provides an alternate analysis. The issue is that the exceptionally large recession and subsequent economic roller coaster has caused data distortions that become exaggerated when the seasonal adjustment methodology uses more than one year's data. Further, Econintersect believes there is a New Normal seasonality and using data prior to the end of the recession for seasonal analysis could provide the wrong conclusion.



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