Wholesale Inventories Flat, Inventory-to-Sales Ratio Shows Hurricane Impacts

The Census Bureau reported wholesale inventories were flat in October. The bureau revised September from +0.7% to +0.6%. Hurricane impacts distorted the numbers, as well as mainstream media analysis of the numbers.

The Econoday comments on wholesale trade are amusing.

Business inventories were unchanged in September while sales however, tied largely to hurricane effects at the retail level, surged 1.4 percent. The mismatch pulls the inventory-to-sales ratio down 2 notches to 1.36 vs a long run at 1.38 and compared against a fat looking 1.40 in September last year.

With retail sales surging 2.1 percent in this report, retail inventories are especially lean, down 0.9 percent and largely reflecting autos where inventories fell 2.4 percent during the post-hurricane replacement surge of September. Wholesale inventories rose 0.3 percent in the month. against a 1.3 percent jump in sales, with manufacturer inventories up 0.7 percent against a 0.8 percent sales rise.

The lack of auto inventories among retailers will filter back through both the wholesale and manufacturing sectors which will have to rebuild their auto inventories. But autos are only one factor. The general need to build inventory to meet demand looks to be an increasing strength for the economy.

Inventory-to-Sales Analysis

While admitting that sales were distorted by the hurricanes, Econoday cites the "increasing strength" of the economy.

The above chart puts that "fat looking" inventory-to-sales ratio of 1.40 in September of 2016 vs. today's hurricane-influenced "general need to build inventory" 1.36 ratio into proper perspective.

Mike "Mish" Shedlock

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