January 2012 Business Sales and Inventories Rebound Slightly

Written by Steven Hansen

Business sales showed moderate growth in January 2012 – rebounding from soft numbers in December.  Business sales combines manufacturing, wholesale and retail sales.

  • Business sales (inflation adjusted) now show 4.3% growth year-over-year – literally twice real GDP’s rate of growth.
  • Inventories look good with inventory-to-sales levels near historical lows for Januarys.  Some pundits are spouting garbage that there was a jump in inventories because the headlines which are misleading.

Advanced retail sales for February released today is signalling a potentially large movement upward in growth rates in next release of this data.

US Census Headlines:

  • sales up 0.4% month-over-month, up 7.2% year-over-year
  • inventories up 0.7% month-over-month (up 7.6% year-over-year), sales-to-inventory ratios were up from 1.26 one year ago – and are now 1.27.
  • market expected inventories to be up 0.6% (actual 0.7%)

Econintersect Analysis:

  • sales up 1.4% month-over-month, and up 8.6% year-over-year
  • sales (inflation adjusted) up 0.9% month-over-month, up 4.3% year-over-year
  • inventories down 0.3% month-over-month (up 7.4% year-over-year), sales-to-inventory ratios 1.37 which is on the low side of the historical channel for this month of the year (good: as high inventories are an recession signal).

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 doesn’t really 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 (analysis), Econintersect analyzed the surprisingly strong advance retail sales for February 2012. That is early data for the month after the data for this post. This is final data from the Census Bureau for January 2012 for:

  • Manufacturing new orders down 2.7% month-over-month, and up 8.1% year-over-year
  • Manufacturing new orders (inflation adjusted) down 2.1% month-over-month, up 2.7% year-over-year
  • Manufacturing unfilled orders up 0.3% month-over-month, and up 9.5% (inflation adjusted 4.1%) year-over-year
  • sales up 2.2% month-over-month, and up 11.3% year-over-year
  • sales (inflation adjusted) up 2.1% month-over-month, up 7.0% year-over-year
  • inventories down 0.9% month-over-month, sales-to-inventory ratios 1.22 which is at the low end of the historical channel for this month of the year (good: inventories are not growing).
  • sales down 0.3% month-over-month, and up 5.6% year-over-year
  • sales (inflation adjusted) up 0.5% month-over-month, up 2.1% year-over-year

The headlines:

Sales. The U.S. Census Bureau announced today that the combined value of distributive trade sales and manufacturers’ shipments for January, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $1,237.2 billion, up 0.4 percent (±0.3%) from December 2011 and up 7.2 percent (±0.4%) from January 2011.

Inventories. Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,569.0 billion, up 0.7 percent (±0.1%) from December 2011 and up 7.6 percent (±0.4%) from January 2011.

Inventories/Sales Ratio. The total business inventories/sales ratio based on seasonally adjusted data at the end of January was 1.27.  The January 2011 ratio was 1.26.

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

This is the sixth straight month of record current dollar business sales.

Inflation adjusted business sales had remained in a channel between 4% and 8% year-over-year growth between April 2011 and November 2011. In December, the year-over-year improvement was only 3.3%.  Now the inflation adjusted growth has returned to the old channel.

Using inflation adjustments, analysts can more clearly count the quantity of business transactions. Although, inflation adjusted data shows there are currently no signs of recession.

Many analysts pay particular attention to inventories in this report. Inventories, expressed as a ratio to sales, contracted slightly and remain well within the historical levels for past Augusts. A unusual rise in this ratio would suggest the economy was contracting. As stated earlier, inventory-to-sales ratios are average compared to other Octobers.

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 wholesale sales portion of this index is showing remarkable year-over-year increases – and is outperforming all other economic benchmarks. The question is why? Econintersect guesses that outsourcing and moving imported products through wholesalers are creating “artificial” growth.  The approximate year-over-year growth rates:

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