Written by Steven Hansen
The headlines say wholesale sales were up month-over-month with inventory levels growing. Our analysis shows improvement in the rate of growth for the rolling averages.
Analyst Opinion of this month’s Wholesale Sales
Our view is that this data set is better than last month.
Year-over-year employment changes and sales growth reasonably correlated until the coronavirus hit.
This data set is considered an outlier and may have issues with data gathering, changing dynamics of the wholesale industry, or definition issues with what is considered wholesale.
Note that Econintersect analysis is based on the change from one year ago. Econintersect Analysis:
- the unadjusted sales rate of growth accelerated 17.8 % month-over-month.
- unadjusted sales year-over-year growth is up 22.7 % year-over-year (it was up 4.8 % YoY last month)
- unadjusted sales (but inflation-adjusted) up 16.5 % year-over-year
- the 3 month rolling average of unadjusted sales accelerated by 5.6 % month-over-month, and up 9.4 % year-over-year.
- unadjusted inventories up 4.7 % year-over-year (accelerated 2.2 % month-over-month), the unadjusted inventory-to-sales ratio is 1.15 which is normal for times of economic growth
US Census Headlines based on seasonally adjusted data:
- sales down 0.8 % month-over-month, up 6.4 % year-over-year (it was reported sales up 5.9 % last month YoY)
- inventories up 0.6 % month-over-month – up 2.0 % year-over-year,
- inventory-to-sales ratios were 1.32 one year ago – and are now 1.27
- expectations for inventory growth from Econoday was 0.5 % to 1.4 % (consensus +1.4 %).
Wholesale sales were at record highs for almost two years – until 2015 where they contracted year-over-year – this contraction ended in 2017 but returned in 2019. Now we have the coronavirus impact.
Seasonally Adjusted Inventory-to-Sales Ratio
The year-over-year change in the inventory-to-sales ratio is what is important. A jump in the ratio could indicate a slowing economy (one month of data is not a trend). A flat trend would indicate an economy that 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 the 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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