Written by Steven Hansen
After last month’s terrible data, the July 2012 wholesale data reassured that the economy was not falling off a cliff. This data set showed that the wholesale sector is consistent with the other business sectors.
- sales up 4.9% month-over-month, partially offsetting last month’s 8.4% decline, and up 5.5% year-over-year
- sales (inflation adjusted) up 4.8% year-over-year
- inventories grew 1.1% month-over-month which is normal from June to July, inventory-to-sales ratio is 1.21 which is 0.07% below last year’s level.
Econintersect does not agree with the headline analysis that sales were down, or that inventory seasonally grew.
- sales down 0.1% month-over-month, up 2.7% (versus 3.1% last month) year-over-year
- inventories up 0.7% month-over-month, inventory-to-sales ratios were 1.18 one year ago – and are now 1.21
- the market expected an inventory increase of 0.0% to 0.3% (versus the headline 0.7% growth)
Year-over-Year Growth – Wholesale Sales – Unadjusted data (blue line) & Inflation Adjusted Data (red line)
Although the data improved this month, it is clear wholesale sales remain in a downtrend since mid 2011. The July 2012 sales did not reach an all-time high – for the first time in 2012.
Wholesale Sales – Unadjusted – $ Millions
Wholesale sales have hit new monthly record highs 14 of the last 17 months (using current dollars). Overall, the inventory-to-sales ratios (a rising ratio is an indicator of economic slowing) is mid-range for the month of July historically.
Unadjusted Inventory-to-Sales Ratio (blue line, left axis) and Year-over-Year Change Unadjusted Inventory-to-Sales Ratio (red line, right axis)
The red line showing year-over-year change 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