Written by Steven Hansen
Whoa. The wholesale data is terrible, and significantly worse than let on by the Census headline analysis. The worst is that sales are in the crapper, which makes the slight reduction in inventories very significant. This is a bad report for June, and one wonders why other June data from the Federal Reserve and Census is not showing declines.
Simply, the wholesale sector does not operate in a vacuum.
- sales down 1.4% month-over-month, up 3.1% year-over-year
- inventories down 0.2% month-over-month, inventory-to-sales ratios were 1.17 one year ago – and are now 1.20
- the market expected an inventory increase of 0.3% to 0.6% (versus the headline 0.2% decline)
- sales down 8.4% month-over-month, and up 0.5% year-over-year
- sales (inflation adjusted) up 0.8% year-over-year (note: according to the BLS, the price inflation in the wholesale trade PPI sub-index is -0.3% in June 2012. This sector is deflating)
- inventories contracted 0.5% month-over-month, inventory-to-sales ratio is terrible rising to 1.17 which is the highest since the Great Recession.
Year-over-Year Growth – Wholesale Sales – Unadjusted data (blue line) & Inflation Adjusted Data (red line)
The poor data in June reinforced the down trend of the data for the past ten months. Even with this disappointment June 2012 managed to reach an all-time high for the sixth month of the year.
Wholesale Sales – Unadjusted – $ Millions
Wholesale sales have hit new monthly record highs 14 of the last 16 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 the month of May historically.
Unadjusted Inventory-to-Sales Ratio (blue line, left axis) and Year-over-Year Change Unadjusted Inventory-to-Sales Ratio
The red line is what is important – and its increase could be considered ominous.
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 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. The only portion of wholesale trade data which seems to correspond to general economic conditions is wholesale trade employment.
All Employees – Wholesale