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posted on 22 March 2019

January 2018 Headline Wholesale Sales Improved With Inventories Very High

Written by Steven Hansen

The headlines say wholesale sales improved month-over-month with inventory levels worsening and very elevated. Our analysis shows a deceleration of the rate of growth for the rolling averages.

Analyst Opinion of this month's Wholesale Sales

Overall, the rolling averages tell the real story - and they declined this month. This sector's growth continues to trend down. This sector has little growth if one inflation adjusts the data.

Inventory levels this month are at recessionary levels.

To add to the confusion, year-over-year employment changes and sales growth do not match.

Note that Econintersect analysis is based on the change from one year ago. Econintersect Analysis:

  • unadjusted sales rate of growth accelerated by 1.7 % month-over-month.
  • unadjusted sales year-over-year growth is up 3.0 % year-over-year (it was 1.2 % YoY last month)
  • unadjusted sales (but inflation-adjusted) up 0.8 % year-over-year
  • the 3 month rolling average of unadjusted sales decelerated 2.1 % month-over-month, and up 2.6 % year-over-year.

  • unadjusted inventories up 7.7 % year-over-year (accelerated 0.4 % month-over-month), unadjusted inventory-to-sales ratio is 1.42 which is at recessionary levels.

US Census Headlines based on seasonally adjusted data:

  • sales up 0.5 % month-over-month, up 2.7 % year-over-year (it was reported sales up 1.0 % last month YoY)
  • inventories up 1.2 % month-over-month - 7.7 % year-over-year,
  • inventory-to-sales ratios were 1.28 one year ago - and are now 1.34.
  • expectations for inventory growth from Econoday was consensus range of 0.1 % to 0.1 % (consensus 0.1 %).

Wholesale sales were at record highs for almost two years - until 2015 where they contracted year-over-year - this contraction ended in 2017. This month sales significantly slowed.

Seasonally Adjusted Inventory-to-Sales Ratio

The year-over-year change in the inventory-to-sales ratio is what is important. 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 the 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.



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