Written by Steven Hansen
The headlines say wholesale sales were up month-over-month with inventory levels remaining elevated. Our analysis shows a deceleration of the rate of growth this month.
Analyst Opinion of this month’s Wholesale Sales
The improvement this month in the headline data was mostly in durable goods. Overall, I believe the rolling averages tell the real story – and they declined this month. The short term trends are showing a slowing in the rate of growth – with the long term trends showing an improving cycle beginning in 2016.
Inventory levels remain elevated but below recessionary levels..
To add to the confusion, year-over-year employment changes and sales growth do not match.
Note that Econintersect analysis is based on the change from one year ago. Econintersect Analysis:
- unadjusted sales rate of growth decelerated 2.5 % month-over-month.
- unadjusted sales year-over-year growth is up 6.9 % year-over-year (it was a downwardly adjusted +9.4 % last month)
- unadjusted sales (but inflation adjusted) up 4.1 % year-over-year
- the 3 month rolling average of unadjusted sales down 0.9 % month-over-month, and up 7.4 % year-over-year.
- unadjusted inventories up 5.7 % year-over-year (accelerated 0.8 % month-over-month), unadjusted inventory-to-sales ratio is 1.42 which is well above normal but below recessionary levels.
US Census Headlines based on seasonally adjusted data:
- sales up 1.0 % month-over-month, up 6.8 % year-over-year
- inventories up 1.0 % month-over-month, inventory-to-sales ratios were 1.28 one year ago – and are now 1.26.
- Expectations for inventory growth from Bloomberg / Econoday were between 0.5 % to 0.7 % (consensus +0.7 %)
Wholesale sales were at record highs for almost two years – until 2015 where they contracted year-over-year – this contraction ended in 2017. Overall, the inventory-to-sales ratios is slowly returning to normal.
Unadjusted Inventory-to-Sales Ratio – Percent Change From One Year Ago
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.
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.
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