Wholesale Inventories Dramatic Swoon, but Sales don't go along for the ride this time

The Montly Wholesale Trade: Sales & Inventories, June 2009 was released today. Folks, while productivity shows very bad news for workers to obtain new jobs, wholesale inventories is also showing that production is not expecting an increase in demand. Wholesale inventories were slashed and burned for the 10th month in a row. (you might note Ritholtz is pointing out these numbers will revise Q2 2009 GDP down.)

Wholesale inventories are about 25% of the total business inventories.

That said, sales rose slightly, 0.4%, and looks like a potential trend on a two month increase (see graph below, although not adjusted for prices).

So why people are crying about a double drop in inventories or the 10th straight month when sales are up? I get that wholesalers do not see pick up in demand ahead as being one reason as well as the pull down on U.S. GDP. That said, it appears sales are now divergent in trend from inventory drop. So why did stocks tumble on this news...sales are up, hey everybody, yeah, rah! Recovery is here!

Oops, unless perhaps some of the price increases are within the margin of error and the strongest increase in sales is due to gas prices! I'm crying now too....gee wiz, I'm just so negative. See graphs and maths below.

june 2009 inventories vs. sales not price adjusted
Src: Dept. of Commerce

wholesale sales, inventories, RTT news
Src: RTT News

As we know:

GDP=C+I+G+X-M

and

I=\text{fixed investment}+\text{changes in inventories}

and

G=\text{Government consumption}+I

where investment is government investment. So clearly this dramatic drop in wholesale inventories will probably lead to a revision in Q2 2009 GDP.

Inventories

Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $393.9 billion at the end of June, down 1.7 percent (+/-0.4%) from the revised May level and were down 10.3 percent (+/-1.2%) from a year ago. The May preliminary estimate was revised downward $1.4 billion or 0.4 percent.

End-of-month inventories of durable goods were down 1.5 percent (+/-0.4%) from last month and were down 10.4 percent (+/-1.4%) from last June. Inventories of metals and minerals, except petroleum, were down 6.2 percent from last month and inventories of lumber and other construction materials were down 2.5 percent.

End-of-month inventories of nondurable goods were down 2.0 (+/-0.7%) from May and were down 10.2 percent (+/-1.6%) compared to last June. Inventories of farm product raw materials were down 11.6 percent from last month and inventories of petroleum and petroleum products were down 2.7 percent.

Sales

The U.S. Census Bureau announced today that June 2009 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $313.1 billion, up 0.4 percent (+/-0.7%)* from the revised May level, but were down 21.0 percent (+/-1.4%) from the June 2008 level.

The May preliminary estimate was revised upward $0.8 billion or 0.2 percent. June sales of durable goods were up 0.7 percent (+/-0.9%)* from last month, but were down 22.9 percent (+/-1.9%) from a year ago.

Sales of motor vehicle and motor vehicle parts and supplies were up 4.5 percent from last month. Sales of nondurable goods were up 0.1 percent (+/-1.1%)* from last month, but were down 19.4 percent (+/-1.6%) from last year. Sales of petroleum and petroleum products were up 7.1 percent from last month, while sales of drugs and duggists' sundries were down 4.7 percent.

Professional economists reading this post are invited to leave a comment and straight me out on why today's release is so horrid.

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And what about imports.

Any change in wholesaler inventory in all likelihood would be from increase in imports so any positive will be offset by the negative and possibly worse because imports may exactly be greater than changes in inventory.

This is what happens when there is destruction of manufacturing sector - I believe it is called: leakage of aggregate demand.

RebelCapitalist.com - Financial Information for the Rest of Us.

Wholesale inventories within the U.S. only

imports haven't been released yet. (I need a damn email alert on all of these EIs!)

Anywho, here is a definition of wholesale inventories.

Now on partial imports or where exactly this is in the supply chain with global sourcing the craze, is a whole other can of worms but officially this statistic is domestic inventories only.

My point is the last part of equation.

(X - M) = Net Exports. There will be "leakage" of aggregate demand (GDP) because we import so much and manufacture very little.

In the past, what has driven GDP was consumer spending. It may be a while for that to return. So that leaves business investment and government spending. Even with any slight grow in business investment may be offset by an increase in imports.

But we will see when the tomorrow when trade balance is released.

RebelCapitalist.com - Financial Information for the Rest of Us.

yes

see link in Q2 GDP 2009 analysis....pretty amusing little issue going on there with a net value in GDP calculations..
(both can decline yet increase GDP).

manufacturers sales, inventories in

Confirms the above.

Sales. The U.S. Census Bureau announced today that the combined value of distributive trade sales and manufacturers' shipments for June, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $975.8 billion, up 0.9 percent (±0.2%) from May 2009 and down 18.0 percent (±0.5%) from June 2008.

Inventories. Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,350.0 billion, down 1.1 percent (±0.1%) from May 2009 and down 9.8 percent (±0.4%) from June 2008.