September 2018 Headline Wholesale Sales Little Changed

The headlines say wholesale sales unchanged month-over-month with inventory levels very elevated. Our analysis shows improvement in the rate of growth for the rolling averages.

 

Analyst Opinion of this month's Wholesale Sales

Overall, the rolling averages tell the real story - and they improved this month. This sector's growth remains in a long term downtrend. The rolling averages are in expansion this month - but if one adjusts for inflation, this series is in contraction.

Inventory levels this month remain at recessionary levels.

To add to the confusion, year-over-year employment changes and sales growth do not match.

 

Note that Econintersect analysis is based on the change from one year ago. Econintersect Analysis:

• the unadjusted sales rate of growth accelerated by 5.0 % month-over-month.
• unadjusted sales year-over-year growth is up 1.8 % year-over-year (it was down 3.1 % YoY last month)
• unadjusted sales (but inflation-adjusted) down 3.0 % year-over-year
• the 3 month rolling average of unadjusted sales accelerated 1.5 % month-over-month, and up 0.4 % year-over-year.

 

• unadjusted inventories up 4.9 % year-over-year (decelerated 1.4 % month-over-month), the unadjusted inventory-to-sales ratio is 1.35 which is at recessionary levels.

US Census Headlines based on seasonally adjusted data:

• sales unchanged month-over-month,down 0.6 % year-over-year (it was reported sales -0,7 % last month YoY)
• inventories up 0.4 % month-over-month - up 4.8 % year-over-year,
• inventory-to-sales ratios were 1.29 one year ago - and are now 1.36
• expectations for inventory growth from Econoday was -0.3 % to 0.2 % (consensus -0.1 %).

 

Wholesale sales were at record highs for almost two years - until 2015 where they contracted year-over-year - this contraction ended in 2017. This month sales significantly slowed.

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 which 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.