Written by Steven Hansen
Headlines say final business sales data (retail plus wholesale plus manufacturing) improved month-over-month. The rolling averages improved. Inventories are within normal ranges for times of economic expansion.
Analyst Opinion of Business Sales and Inventories
This data is about the same as the previous month – except if one adjusts for inflation which means the data is worse.
The reason for the significant growth year-over-year is because it is being compared to the recession recovery period last year.
Our primary monitoring tool – the 3-month rolling averages for sales – declined (mostly due to comparisons to the recovery period one year ago). As the monthly data has significant variation, the 3-month averages are the way to view this series.
Econintersect Analysis:
- the unadjusted sales rate of growth decelerated 0.5 % month-over-month and up 20.2 % year-over-year
- unadjusted sales (but inflation-adjusted) up 11.1 % year-over-year
- unadjusted sales three-month rolling average compared to the rolling average 1 year ago decelerated 8.5 % month-over-month, and is up 29.0 % year-over-year.
- unadjusted business inventory’s growth rate accelerated 2.1 % month-over-month (up 6.6 % year-over-year), and the inventory-to-sales ratio is 1.19 which is within the normal range or times of economic expansion.
- seasonally adjusted sales up 1.4 % month-over-month, up 19.9 % year-over-year (published +28.7 % last month).
- seasonally adjusted inventories were up 0.8 % month-over-month (up 6.6 % year-over-year), inventory-to-sales ratios were up from 1.41 one year ago – and are now 1.25
- market expectations (from Econoday) were for inventory growth of 0.2 % to 0.8 % (consensus +0.8 %).
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 July 2021. This is final data from the Census Bureau for June 2021 for manufacturing, wholesale, and retail (see graphs below):
Business Sales – Unadjusted – $ millions
Many analysts pay particular attention to inventories in this report. Inventories are expressed as a ratio to sales. The current situation suggests the economy was contracting as inventories are growing.
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 the overall inventory rate of growth is now decreasing. The above graph is the headline view of inventories. Econintersect uses unadjusted data to look at inventories. The graph below shows the growth or contraction of the inventory-to-sales ratio year-over-year. When the graph below is above zero, inventories are building faster than sales.
Unadjusted Inventory-to-Sales Year-over-Year Change
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 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 the 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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