May 2015 Wholesale Sales Remain In Contraction with Elements Very Soft

Written by Steven Hansen

The headlines say wholesale sales expanded year-over-year with inventory levels remaining at levels associated with recessions. The best way to look at this series may be the unadjusted data three month rolling averages which decelerated for the tenth month in a row. Econintersect sees this as another soft report.

Note that Econintersect analysis is year-over-year – the analysis is based on the change from one year ago. Econintersect Analysis:

• unadjusted sales rate of growth decelerated 3.3% month-over-month.
• unadjusted sales year-over-year growth is down 6.8% year-over-year
• unadjusted sales (but inflation adjusted) down 7.7% year-over-year
• the 3 month rolling average of unadjusted sales decelerated 1.5% month-over-month, and down 4.0% year-over-year. There has been a general deceleration trend since late 2014.

Year-over-Year Sales – Unadjusted (blue line), Unadjusted but Inflation Adjusted (red line), 3 month Rolling Averages (yellow line)

z%20wholesale1.PNG

• unadjusted inventories up 5.1% year-over-year (accelerated 0.8% month-over-month), inventory-to-sales ratio is 1.30 which is historically is well above non-recessionary periods.

US Census Headlines based on seasonally adjusted data:

• sales up 0.3% month-over-month, down 3.8% (last month was reported down 3.3%) year-over-year
• inventories up 0.8% month-over-month, inventory-to-sales ratios were 1.19 one year ago – and are now 1.29.
• the market expected inventory month-over-month change between +0.2 % to +0.5 % (consensus 0.3%) versus the +0.8% reported.

Wholesale Sales – Unadjusted – $ Millions

wholesale_2005on.PNG

Wholesale sales have now been at record highs for almost two years – until 2015 where they contracted year-over-year (and the contraction continues). Overall, the inventory-to-sales ratios (a rising ratio is an indicator of economic slowing) was abnormally high relative to past Aprils.

Unadjusted Inventory-to-Sales Ratio (blue line – left axis), Year-over-Year Change (red line – right axis)

wholesale_inventory.PNG

Year-over-year change in the inventory-to-sales ratio is what is important. A jump in the ratio which could indicate a slowing economy (one month of data is not a trend). A flat trend would indicate an economy which was neither accelerating or decelerating. A decelerating trend would indicate an improving economy. Currently since mid-2014 there has been a general deterioration of the inventory-to-sales ratio indicating a slowing economy.

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

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