Wholesale Trade Is Flat Contrary to Census Analysis

Econintersect disagrees with the US Census analysis that wholesale sales improved in October 2010.  The headlines from the Census press release:

Sales. The U.S. Census Bureau announced today that October 2010 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading – day differences but not for price changes, were $362.1 billion, up 2.2 percent (+/-0.7%) from the revised September level and were up 13.4 percent (+/-1.1%) from the October 2009 level.  The September preliminary estimate was revised upward $0.3 billion or 0.1 percent.  October sales of durable goods were up 0.5 percent (+/-1.1%)* from last month and were up 12.9 percent (+/-0.9%) from a year ago.  Sales of lumber and other construction materials were up 2.7 percent from last month.  Sales of nondurable goods were up 3.7 percent (+/-1.1%) from last month and were up 13.8 percent (+/-1.6%) from last year.  Sales of farm product raw materials were up 25.9 percent from last month and sales of petroleum and petroleum products were up 6.4 percent.

Inventories. Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $427.1 billion at the end of October, up 1.9 percent (+/-0.5%) from the revised September level and were up 9.9 percent (+/-1.6%) from a year ago.  The September preliminary estimate was revised upward $2.3 billion or 0.6 percent.  End-of-month inventories of durable goods were up 0.9 percent (+/-0.4%) from last month and were up 5.0 percent (+/-1.4%) from last October.  Inventories of metals and minerals, except petroleum were up 2.2 percent from last month and inventories of computer and computer peripheral equipment and software were up 1.9 percent.  End-of-month inventories of nondurable goods were up 3.2 percent (+/-1.2%) from September and were up 17.4 percent (+/-3.2%) compared to last October.  Inventories of farm product raw materials were up 20.5 percent from last month and inventories of petroleum and petroleum products were up 3.5 percent.

Inventories/Sales Ratio. The October inventories/sales ratio for merchant wholesalers, except manufacturers’ sales branches and offices, based on seasonally adjusted data, was 1.18. The October 2009 ratio was 1.22.

Wholesale data is important as it represents a one month window into retail sales – in other words, this data gives an indication of what November retail sales data will look like.

Econintersect uses unadjusted data to analyze as seasonal adjustment factors are suspect due to the distortions of a deep recession and New Normal data characteristics – and how this plays into the quantitative methodologies used in seasonal adjustments.

Wholesale data has seasonal characteristics.  Comparing the 2010 data to prior years, there is no convincing evidence that October 2010 has improved MoM.

Regardless whether you believe in New Normal or not, October data does not appear to have expanded regardless of comparison to the old or new normals.  In spite of the ebulient media reaction, we call the data flat at best.

The chart above shows the current inventory levels divided by the month sales.  This ratio fluctuates due to seasonal characteristics of both sales and inventory.  This number is watched by Econintersect as it offers an early warning of an economic stall – which would be indicated by a sharp rise in this ratio caused by slowing sales.  The ratio is well within the expected channel for October.

 

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