October 2011 Wholesale Sales Remain Strong

Wholesale sales has been a volatile data series – up one month, down another. October 2011 is the second down month in a row (Econintersect analysis) – but this data series still has stronger growth than most other sectors of the economy.

US Census Headlines:

  • sales up 0.9% month-over-month, up 13.1% year-over-year
  • inventories up 1.6% month-over-month, sales-to-inventory ratios were 1.18 one year ago – and are now 1.16

Econintersect Analysis:

  • sales down 1.9% month-over-month, and up 12.8% year-over-year
  • sales (inflation adjusted) down 1.3% month-over-month, up 9.0% year-over-year
  • inventories up 0.5% month-over-month, sales-to-inventory ratios 1.12 which is lower than the historical channel for this month of the year (good: inventories are not growing).

Note that the inflation adjustment is more precise this month – as it now uses the specific PPI sub-index for wholesale sales.  The general trend for the unadjusted sales is considered flat (the rate of growth is constant) for 2011, while there is a general downward trend for inflation adjusted sales growth throughout 2011.  However, to get to the bottom line, wholesale sales are at record levels compared to past Septembers (see caveats below).

Wholesale sales have hit new monthly record highs 7 of the last 8 months (using current dollars).  Overall, the inventory-to-sales ratios (a rising ratio is an indicator of economic slowing) for October 2011 is in the middle of the range for Octobers.

Caveats on the Use of this Index

This index is showing remarkable year-over-year increases – and is outperforming all other economic benchmarks.  The question is why?  Econintersect‘s guess is that outsourcing and moving imported products through wholesalers is creating growth.  The approximate year-over-year growth rates:

  • manufacturing up about 10% (3% inflation adjusted)
  • wholesale up about 13% (9% inflation adjusted)
  • retail up about 7% (3% inflation adjusted)

Can the growth in wholesale sales be considered real growth when even the employment levels in this industry remain below pre-recession highs – or that real (inflation adjusted) manufacturing and retail sales growth are only one-third of wholesale?

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 – Econintersect uses the PPI – subindex Total Wholesale PCUAWHLTRAWHLTR.

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.

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