US: Wholesale Trade

Tue Feb 10 09:00:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Inventories - M/M change 0.1% 0.0% to 0.7% 0.1% 0.8% 0.8%

The economy may be solid right now but inventories at the wholesale level look heavy, rising 0.1 percent in December vs a noticeable 0.4 percent decline in sales at the wholesale level. The mismatch drives up the stock-to-sales ratio by 1 notch from 1.21 to 1.22 which is the heaviest reading since way back in the troubled days of late 2009. This ratio was at 1.17 through the middle of last year but has since been moving higher.

December's unwanted wholesale build is centered in the non-durable component where sales, in contrast to durable goods which rose 1.1 percent, fell 1.7 percent in the month. Here the culprit is petroleum where sales, reflecting both price effects and lower demand, fell 13.7 percent in the month. And the supply overhang, based on weekly petroleum inventory data, has continued to build into the new year. Showing a big draw in the month are lumber and electrical goods, two products that may be signaling rising demand out of the construction sector.

The nation's inventories have been moving higher relative to sales but the imbalance has been centered in the wholesale sector, though inventories at the factory level are showing a little pressure as well. Watch Thursday for the business inventories inventory report which will round out December's inventory picture with data on the retail sector.

Market Consensus Before Announcement
Wholesale inventories looked a bit heavy in the wholesale sector, up 0.8 percent in November versus a 0.3 percent decline in sales that lifted the stock-to-sales ratio to 1.21 from October's 1.20 and compared to 1.19 in September. Weak sales made for unwanted inventory builds in metals, chemicals, lumber, machinery and farm products.

Wholesale trade measures the dollar value of sales made and inventories held by merchant wholesalers. It is a component of business sales and inventories.

Investors need to monitor the economy closely because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers a slower rate of growth that won't lead to inflationary pressures. Wholesale sales and inventory data give investors a chance to look below the surface of the visible consumer economy. Activity at the wholesale level can be a precursor for consumer trends. In particular, by looking at the ratio of inventories to sales, investors can see how fast production will grow in coming months. For example, if inventory growth lags sales growth, then manufacturers will need to boost production lest product shortages occur. On the other hand, if unintended inventory accumulation occurs (i.e. sales did not meet expectations), then production will probably have to slow while those inventories are worked down. In this manner, the inventory data provide a valuable forward-looking tool for tracking the economy.