Wholesale Sales Have a Bad Month in March 2012

Written by Steven Hansen

It is not often that the difference between the adjusted and unadjusted data is like night and day – but in March 2012, the seasonally adjusted data looks very good and the unadjusted data looks terrible.  The year-over-year unadjusted data crashed from up 14.0% last month to up 3.9% this month.   One month is not a trend but after inflation adjustment there seems little growth in wholesale in March.

US Census Headlines:

  • sales up 0.5% month-over-month, up 6.5% year-over-year
  • inventories up 0.3% month-over-month, sales-to-inventory ratios were 1.15 one year ago – and are now 1.17
  • the market expected an inventory increase of 0.6%(versus the headline 0.3%)

Econintersect Analysis:

  • sales down 9.9% month-over-month, and up 3.9% year-over-year
  • sales (inflation adjusted)  up 1.2% year-over-year
  • inventories unchanged 0.0% month-over-month, sales-to-inventory ratio is 1.12 which is low for Marchs (good: inventories are not growing).

The downward trend that was broken last month – is now reinstated.  Still, even though the data is significantly less good – March 2012 is a record current dollar sales month compared to the same month in past years.

Wholesale sales have hit new monthly record highs 11 of the last 13 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 March historically.

The takeaway is that sales-to-inventory levels are trending down (inventories are shrinking comparative to sales). This is normally a good sign showing the economy is growing. I never will understand the fixation in inventory growth as it does not correlate to the economy.

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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