US: Wholesale Trade

Thu Apr 09 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Inventories - M/M change 0.2% 0.0% to 0.6% 0.3% 0.3% 0.4%

Inventories relative to sales in the wholesale sector remained bloated for a 2nd straight month in February, up 0.3 percent vs a decline of 0.2 decline in wholesale sales. The mismatch keeps the stock-to-sales ratio unchanged at 1.29, which is the highest reading since the recession period of June 2009.

Revisions to January are even more unfavorable with the inventory build revised 1 tenth higher to plus 0.4 percent and sales revised even lower to minus 3.6 percent from an initial minus 3.1 percent. January, reflecting a huge price-related downswing in petroleum products, was the worst month for wholesale sales since March 2009.

But it's more than any one sector as sales declines in the 2 months are spread out broadly through components. Pulling February down the most were electrical goods, machinery, and metals, all pointing to weakness in the industrial economy, weakness perhaps related to declining exports. Wholesale sales of autos were also weak. All these components show bloated gains in their stock-to-sales ratios.

The wholesale sector is the intermediary between manufacturing and retailing, and the signals it is sending tell of weakening demand on the retail side and point to slowing production on the manufacturing side. These of course are negative signals for future employment growth. Watch for the business inventories report on Tuesday which will include an inventory update out of retailing.

Market Consensus Before Announcement
Wholesale inventories for January were up a tame looking 0.3 percent against, however, a huge 3.1 percent plunge in wholesale sales. This was the largest drop in sales since May 2009. The mismatch drives the stock-to-sales ratio up very sharply, to 1.27 from 1.22. The 1.27 is the heaviest reading since July 2009 and the month-to-month increase is the sharpest since November 2008. Data on the factory sector, released last week with the factory orders report, also showed an unusual build in January with the shipments-to-inventory ratio rising to 1.36 from 1.34.

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.