The Inventory Deepens

Unlike retail sales in January, wholesale sales won’t need revisions to become highly negative in either the seasonal or unadjusted versions. On a seasonally-adjusted basis, wholesale sales declined rather sharply in January (-1.35% M/M), the fourth consecutive decline, sixth out of the past seven months and making fourteen of the past eighteen since all this began. On an unadjusted basis, wholesale sales dropped by 6.4% which was the second worst month of this “recovery” period, meaning consistency no matter the format.

Yet, inventory grew in January for both terms. Seasonally-adjusted, inventory rose 0.3% M/M after being flat in December, while unadjusted inventory accelerated slightly to +2.0% Y/Y in January following 1.8% (more consistency). Immediately the disparity seems like petroleum and oil prices but the broader range of wholesale sales, in particular, have come under sharper and more acute pressure in the past few months. In fact, non-petroleum wholesale sales have contracted for the third consecutive month in January.

Since the start of 2015, on a seasonally-adjusted basis overall wholesale sales have declined by about $28.5 billion, from $461.7 billion to $$433.1 billion in January 2016. Of that contraction, $17.8 billion was due to petroleum sales and prices while a rather alarming $10.8 billion was wholesale sales elsewhere. In the wholesale level of the supply chain, contraction is widespread and growing which means the inventory problem is too.

As wholesale sales continue at a contraction slightly worse than the dot-com recession, inventory grows at every point and in every category. Additions to inventory have certainly slowed, but it does not yet suggest full-scale cutbacks despite production cuts in manufacturing (and whatever might be happening on the retail level). The imbalance only drags on further, mimicking more closely the extremes of the Great Recession.

Even motor vehicles are stocked at recessionary levels. The inventory-to-sales ratio for autos remained so high in January 2016 that they are totally unlike any other January in the entire series except for January 2009!