Wholesale inventories came in today at +0.3% compared to a Bloomberg Econoday Consensus Estimate of -0.1%.
The entire range was -0.4% to +0.3% so a small number of economists, most likely one, got the number correct.
That’s not what caught my eye, however. What did catch my eye was an absurd Bloomberg statement about inventories heading into the report.
Wholesalers had been keeping their inventories down as sales have slowed but they got behind in January. Inventories rose 0.3 percent in the month which isn’t alarming in itself but relative to sales, which fell 1.3 percent, inventories look heavy. The stock-to-sales ratio rose two notches to 1.35 from 1.33 for the highest reading of the recovery, since April 2009.
Industries where inventories rose relative to sales include furniture, farm products, computers, and autos. Very few industries at the wholesale level show leaner levels in the month.
Year-on-year, wholesale inventories are up 2.0 percent against a 3.1 percent decline for sales. Increases for inventories are a positive for GDP calculations but not for the production or employment outlooks nor for business confidence. Heavy inventories were a question during the fourth quarter and may be becoming one for the first quarter as well.
Wholesale inventories, due to soft demand, fell each month of the fourth quarter and the reading on the first month of the first quarter is also negative, at a consensus minus 0.1 percent. Wholesale inventory liquidation has been a success, keeping the stock-to-sales ratio for this sector at a moderate 1.32 in both December and November.
Wholesale Inventories to Sales
Let’s investigate the claim “Wholesale inventory liquidation has been a success, keeping the stock-to-sales ratio for this sector at a moderate 1.32 in both December and November.”
Not Alarming Yet
Fred has not yet updated the chart with today’s data. The chart thus reflects the “moderate” inventory to sales ratio of 1.32 in December.
Since 1998 there were only three times in which inventories-to-sales rose to the moderate level of 1.32. In two of those three times, the economy was in recession. The other time was 1998 and the economy was headed to recession thanks to the dotcom bubble.
Anyone recall Cisco’s massive writeoff of routers and the stockpiling of everything fiber-related?
Today we at the “non-success” but “not alarming” yet level of 1.35 that was only exceeded midway through the great recession.
I am relieved. Aren’t you?
Mike “Mish” Shedlock