January 2012 Wholesale Sales Show Improvement

Written by Steven Hansen

Wholesale sales has been a volatile data series – up one month, down another. However, after four declining months (rate of growth), wholesales sales rate of growth spiked up in January 2012.

Nothing in the data is really concerning, and this series remains consistent with a strengthening economy. Inventory ratios specifically were lower than previous years (rising inventory ratios can be a sign of a slowing economy).US Census Headlines:

  • sales down 0.1% month-over-month, up 7.9% year-over-year
  • inventories up 0.4% month-over-month, sales-to-inventory ratios were 1.14 one year ago – and are now 1.15
  • the market expected an inventory increase of 0.6% (versus the headline 0.4%)

Econintersect Analysis:

  • sales up 2.2% month-over-month, and up 11.3% year-over-year
  • sales (inflation adjusted) up 2.1% month-over-month, up 7.0% year-over-year
  • inventories down 0.9% month-over-month, sales-to-inventory ratios 1.22 which is at the low end of the historical channel for this month of the year (good: inventories are not growing).

There is a slight downward growth trend for the inflation adjusted sales. However, to get to the bottom line, wholesale sales are at record levels compared to past January numbers (see caveats below).

Wholesale sales have hit new monthly record highs 10 of the last 11 months (using current dollars). Overall, the inventory-to-sales ratios (a rising ratio is an indicator of economic slowing) is on the low end of the range for Decembers.

Caveats on the Use of this Index

This earlier, this index is showing remarkable year-over-year increases – but currently the rate of growth is in alignment with other sectors. The approximate year-over-year growth rates:

  • manufacturing up about 11% (5% inflation adjusted)
  • wholesale up about 11% (7% inflation adjusted)
  • retail up about 6% (2% inflation adjusted)

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.

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