February 2014 Business Inventories and Sales Mixed

Written by Steven Hansen

Econintersect‘s analysis of final business sales data (retail plus wholesale plus manufacturing) for February 2014 shows sales declined with inventory levels up with inventory levels remaining on the high side of a normal range for periods of expansion. The headline seasonally adjusted data says sales increased. Note this entire data series was revised downward showing lower growth in the last several years.

• The unadjusted three month rolling average of business sales decelerated for the second month in a row.
• This is a record current dollar month for sales.

Econintersect Analysis:

• unadjusted sales rate of growth decelerated 0.3% month-over-month, and up 2.0% year-over-year
• unadjusted sales (inflation adjusted) up 1.3% year-over-year
• unadjusted sales three month rolling average compared to the rolling average 1 year ago decelerated 0.1% month-over-month, and is up 3.2% year-over-year.
• unadjusted business inventories growth accelerated 0.4% month-over-month (up 4.3% year-over-year), and the inventory-to-sales ratio is 1.44 which is is on the high side for Februarys during non-recessionary periods.

US Census Headlines:

• seasonally adjusted sales up 0.8% month-over-month, up 1.8% year-over-year
• seasonally adjusted inventories up 0.4% month-over-month (up 4.2% year-over-year), inventory-to-sales ratios were up from 1.28 one year ago – and are now 1.31.
• market expected seasonally adjusted inventories to be from 0.3% to 0.3% (consensus 0.6%) versus actual 0.4%.

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 does not 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, Econintersect analyzed advance retail sales for March 2014. That is early data for the month following the data for this post. This is final data from the Census Bureau for February 2014 for manufacturing, wholesale, and retail:

Year-over-Year Change Manufacturing New Orders – Unadjusted (blue line) and Inflation Adjusted (red line)

Year-over-Year Growth – Wholesale Sales – Unadjusted data (blue line) & Inflation Adjusted Data (red line) and three month rolling average of unadjusted data (yellow line)

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Year-over-Year Change – Unadjusted Retail Sales (blue line) and Inflation Adjusted Retail Sales (red line)

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

Business Sales – Unadjusted – $ millions

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This is a record current dollar month for sales for Februarys.

Business sales have been quite noisy but sales growth decelerated this month.

Year-over-Year Change Business Sales – Unadjusted (blue line), 3 month moving average (yellow line), and Inflation Adjusted (red line)

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Using inflation adjustments, analysts can more clearly count the quantity of business transactions. Inflation adjusted data also slightly decelerated.

Many analysts pay particular attention to inventories in this report. Inventories, expressed as a ratio to sales, remain well within the historical levels. A unusual rise in this ratio would suggest the economy was contracting.

Seasonally Adjusted Business Inventories Year-over-Year Change – Inventory Value (blue line, left axis) and Inventory-to-Sales Ratio (red line, right axis)

The takeaway from the above graph is that overall inventories rate of growth is accelerating.The above graph is the headline view of inventories. Econintersect uses unadjusted data to look at inventories. To do so, you need to compare ONLY the data results in the month of the data release – and DO NOT compare one month against another. A rising ratio would indicate an inventory buildup.

Unadjusted Inventory-to-Sales Ratio

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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 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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