Headlines say final business sales data (retail plus wholesale plus manufacturing) improved month-over-month. The rolling averages improved. Inventories declined but remain elevated.
Analyst Opinion of Business Sales and Inventories
There is little effect from the coronavirus this month except for inventory reduction. This is a strange recession where normally inventories rise - but the coronavirus recession caused inventories to rise.
Inventories remain elevated but they declined. Our primary monitoring tool - the 3-month rolling averages for sales - improved. 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 accelerated 3.5 % month-over-month and down 14.9 % year-over-year
- unadjusted sales (but inflation-adjusted) down 13.3 % year-over-year
- unadjusted sales three-month rolling average compared to the rolling average 1 year ago decelerated 5.8 % month-over-month, and is down 12.4 % year-over-year.
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- unadjusted business inventory's growth rate decelerated 2.5 % month-over-month (down 4.8 % year-over-year), and the inventory-to-sales ratio is 1.48 which is recessionary.
- seasonally adjusted sales up 8.4 % month-over-month, down 11.8 % year-over-year (published -5.2 % last month).
- seasonally adjusted inventories were down 2.3 % month-over-month (down 4.8 % year-over-year), inventory-to-sales ratios were up from 1.40 one year ago - and are now 1.51
- market expectations (from Econoday) were for inventory growth of -4.0 % to -0.5 % (consensus -2.3 %).
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 June 2020. This is final data from the Census Bureau for May 2020 for manufacturing, wholesale, and retail (see graphs below):
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Business Sales - Unadjusted - $ millions
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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)
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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
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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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