The seasonally adjusted data on business (manufacturing, wholesale and retail) for October 2010 suggests sales increased – the unadjusted data says otherwise. First the headlines:
Sales. The U.S. Census Bureau announced today that the combined value of distributive trade sales and manufacturers’ shipments for October, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $1,118.8 billion, up 1.4 percent (±0.2%) from September 2010 and up 9.3 percent (±0.4%) from October 2009.
Inventories. Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,417.7 billion, up 0.7 percent (±0.2%) from September 2010 and up 6.9 percent (±0.5%) from October 2009.
Inventories/Sales Ratio. The total business inventories/sales ratio based on seasonally adjusted data at the end of October was 1.27. The October 2009 ratio was 1.30.
Because of the Great Recession, and differing patterns of the New Normal – past seasonal adjustment methodologies are not yielding the correct answers. On a case-by-case basis, the unadjusted data must be parsed.
Referring to the above graph, it depends what years are considered normal whether you can draw a conclusion that sales increased.
If a quantitative approach is used – there is no method which convinces an analyst there was an increase (or even a decrease). The most logical call is that the sales data is inconclusive – or the data is flat MoM for October 2010.
However, flags were raised when Econintersect analyzed the inventory levels. The unadjusted inventory to sales ratio was 1.29 which was well within the normal October range of 1.26 to 1.33. However, it was the rate of change of the inventory build that raised eyebrows.
There is a normal end of year inventory saw-tooth effect. This year’s saw-tooth looks obviously different, Why? Normally an quick inventory gain suggests an unanticipated slowing of the economy. No data suggests this is what has happened. It may be an earlier and bigger than normal Christmas season inventory build.
One month is not a trend. This inventory data point will be watched for further increases in coming months. If that were to happen, EconIntersect would take that as a negative sign for the economy.
Wholesale Trade is Flat Contrary to Census Analysis by Steven Hansen
Strong Retail Sales for November 2010 by Steven Hansen