The economic theme of the 2013 was inventory as it accumulated in the retail apex of the supply chain. Wholesalers have been far more cautious about expanding inventory, coming far short of even 2012 levels after the dramatic experience after the 2012 holiday season. Despite this conscious desire to not overextend, they may not have much choice given the situation at the retail level. That is certainly why wholesale sales dropped so significantly in January.
February’s data includes a small rebound, which has to be disappointing given the scale of January’s decline. As a result, now wholesale inventory levels are as relatively high as 2012 (due to sales slump rather than inventory growth).
Note: there was a recent benchmark change in wholesale sales and inventories going back to January 2011 that removed a great deal of inventory that was previously believed to exist. There was also a benchmark change in the estimates for wholesale sales, but the result there was far more mixed in total. The net effect was a decline in the overall inventory to sales ratio, however, the overall pattern has not changed only the absolute level (shown above). That raises the issue of whether it may have a belated impact on benchmark revisions to GDP given that figure’s very heavy reliance on inventory particularly in the months where the revisions here appear greatest.
Growth of wholesale sales and inventory should be far closer to 10% Y/Y than 0% to generate expectations of full recovery and its self-sustaining trajectory, but the current pace continues along as it has since the middle of 2012. That compares unfavorably to even the Great Recession (including any adjustments for inflation measures).
Beyond that persistent and undesirable trend, the actual economic demand seen through wholesale sales in the latter months of 2013 and into 2014 is to some significant degree overstated by petroleum. Excluding petroleum sales, the direction of wholesale results is decidedly downward back near cycle lows.
As per usual, there is nothing here to indicate an acceleration of demand or activity. If viewed through relative inventory, there are only the conditions for the opposite. That should cause another revision to expectations of growth going forward, but I suspect somehow the allure of dovishness will prevent it.
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