Monday, November 14, 2016

Wholesale sales stall again, while inventories continue to decline slowly

 - by New Deal democrat

The shallow industrial recession caused largely by the surge in the US$ was a buildup in inventories compared with sales.  It looks like industrial production bottomed in March, and corporate earnings for Q3 look like they will turn positive YoY.  So how are inventories and sales doing?

One of the five graphs I have paid particular attention to is that of wholesalers' inventories and sales, since they have not had the secular issues that manufacturers, with "just in time" inventories, have had.

The current level of the inventory to sales ratio has sometimes but not always indicated a recession.

We can get a btter look by decomposing this ratio into its two components:  sales (blue) vs. inventories (red), expressed in real, inflation-adjusted terms.  H
istorically sales have made a  peak/trough first, and inventories catch up with a lag.  So this year I have been watching for two things: (1) a downturn in inventories, indicating the liquidation is underway; and (2) a bottoming of sales, indicating the inventory correction is over.

Here's what it looks like through September:

Sales bottomed in January and Inventories peaked at the same time.  

Now here is a close-up of the last year:

Inventories have continued to decline, but in real terms sales have stalled again.  Since sales lead inventories, this is not good news, and of course bears further watching.