US Wholesale Trade Inventories Decline; Revisions Announced; First Quarter GDP Troubles Brewing

According to the Census Department’s Monthly Wholesale Trade Report, inventories declined 0.2% in January. This is a negative for first-quarter GDP estimates. However, the Census Department issued an “Intention to Revise” notice so the whole report and back reports are suspect.

"Intention to Revise

Monthly Wholesale sales, inventories, and inventories/sales ratios will be revised based on the results of the 2015 Annual Wholesale Trade Survey. Revised not adjusted and corresponding adjusted estimates are tentatively scheduled to be released on our website on March 24, 2017.

Sales

January 2017 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $463.6 billion, down 0.1 percent from the revised December level, but were up 8.4 percent (±0.9 percent) from the January 2016 level. The November 2016 to December 2016 percent change was revised from the preliminary estimate of up 2.6 percent to up 2.4 percent.

Inventories

Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $600.0 billion at the end of January, down 0.2 percent from the revised December level. Total inventories are up 2.2 percent (±0.9 percent) from the revised January 2016 level. The December 2016 to January 2017 percent change was revised from the advance estimate of down 0.1 percent to down 0.2 percent.

Inventories/Sales Ratio

The January inventories/sales ratio for merchant wholesalers, except manufacturers’ sales branches and offices, based on seasonally adjusted data, was 1.29. The January 2016 ratio was 1.37."

Inventor-to-Sales Numbers 

Automobile sales at the wholesale level were up 3.2% while inventories fell 3.1%. Bloomberg Econoday commented: “This points to restocking and a gain for auto production.”

Econoday also noted “stock-to-sales is a healthy 1.29 ratio“. Here is a picture of the allegedly healthy inventory-to-sales ratio.

The chart is heading in the right direction, but is it healthy?

As for the need to restock autos, Econoday is in fantasyland. Inventories were so high that the manufacturers had to cut back production. At best, the whole trade numbers took auto inventories to normal levels. But recall that GDPNow just slashed its GDP estimate, and one of the reasons was weak retail auto sales.

For details, please see US GDPNow 1st Quarter Forecast Plunges to 1.3% Following Vehicle Sales and Factory Orders Reports.

Thus, trouble is brewing on the GDP front for the first quarter.