Wholesale Sales In December 2011 Continues to Show Growth

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

Nothing in the data is really concerning, and this series remains consistent with a strengthening economy.  Further, it supports the earlier released December 2011 retail sales which showed a Christmas month which was OK, but under expectations.    Inventories specifically were consistent with the recent new normal growth going from November and December in recent years, and inventory to sales ratios remain low (good).US Census Headlines:

  • sales up 1.3% month-over-month, up 11.8% year-over-year
  • inventories up 1.0% month-over-month, sales-to-inventory ratios were 1.16 one year ago – and are now 1.15
  • the market expected an inventory increase of 0.3% to 0.4% (versus the headline 1.0%)

Econintersect Analysis:

  • sales down 1.8% month-over-month, and up 9.0% year-over-year
  • sales (inflation adjusted) down 3.0% month-over-month, up 6.8% year-over-year
  • inventories up 0.9% month-over-month, sales-to-inventory ratios 1.17 which is at the low end of the historical channel for this month of the year (good: inventories are not growing).

There is a slight downward growth trend for the unadjusted and inflation adjusted sales.   However, to get to the bottom line, wholesale sales are at record levels compared to past December numbers (see caveats below).

Wholesale sales have hit new monthly record highs 9 of the last 10 months (using current dollars).   Overall, the inventory-to-sales ratios (a rising ratio is an indicator of economic slowing) is on the low end of the range for Decembers.

Caveats on the Use of this Index

This earlier, this index is showing remarkable year-over-year increases – but currently the rate of growth is in alignment with other sectors. The approximate year-over-year growth rates:

  • manufacturing up about 11% (5% inflation adjusted)
  • wholesale up about 9% (7% inflation adjusted)
  • retail up about 6% (2% inflation adjusted)

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 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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