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posted on 15 November 2016

September 2016 Headline Business Sales and Inventories Improve

Written by Steven Hansen

Econintersect's analysis of final business sales data (retail plus wholesale plus manufacturing) shows unadjusted sales were not as good as last month - but the rolling averages improved. Unadjusted Inventories grew relative to the previous month and inventory-to-sales ratios remain at recessionary levels.

Analyst Opinion of Business Sales and Inventories

This was a down month for business sales - but inventories remain at recession levels (but moderating). However, the rolling averages for sales are now in expansion. As the monthly data has significant variation, the 3 month averages are the way to view this series.

Also consider the disconnect between the year-over-year growth of employment in business and business sales - however this month the inversion was broken but the rolling averages are still inverted.

Inversions normally occurs in recessions.

Econintersect Analysis:

  • unadjusted sales rate of growth decelerated 2.5 % month-over-month, and up 1.0 % year-over-year
  • unadjusted sales (but inflation adjusted) up 1.1 % year-over-year
  • unadjusted sales three month rolling average compared to the rolling average 1 year ago accelerated 0.5 % month-over-month, and is up 0.1 % year-over-year.

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

z business1.PNG

  • unadjusted business inventories growth rate decelerated 0.1 % month-over-month (up 0.6 % year-over-year with the three month rolling averages showing inventory growth now shrinking), and the inventory-to-sales ratio is 1.36 which is at recessionary levels (well above average for this month).

US Census Headlines:

  • seasonally adjusted sales up 0.7 % month-over-month, up 0.8 % year-over-year.
  • seasonally adjusted inventories were up 0.1 % month-over-month (up 0.6 % year-over-year), inventory-to-sales ratios were up from 1.39 one year ago - and are now 1.38.
  • market expectations (from Bloomberg / Econoday) were for inventory growth of 0.1 % to 0.3 % (consensus +0.2 %) versus the actual of +0.1 %.

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 October 2016. This is final data from the Census Bureau for September 2016 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 Wholesale Sales - Unadjusted (blue line), Unadjusted but Inflation Adjusted (red line), 3 month Rolling Averages (yellow line)

z%20wholesale1.PNG

Advance Retail Sales Year-over-Year Change - Unadjusted (blue line), Unadjusted with Inflation Adjustment (red line), and 3 Month Rolling Average of Unadjusted (yellow line)

/images/z retail1.png

Business Sales - Unadjusted - $ millions

Year-over-year sales have been bouncing around the zero growth line for over one 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 suggesst 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 flat. 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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