Tuesday, January 10, 2012

Wholessale inventories slow faster than sales is that good?

Inventories slow in November

Inventories rose by just 0.1% in November after soaring by 1.2% in October. The sharp slowdown is reassuring. As of November over the last three months inventories are growing faster than sales in 40% of the wholesale sectors that implies that in 60% of them we have the more healthy situation of sales growth matching or exceeding inventory growth. That is good news as far as it goes. But sales are still slowing over 70% of the sectors. The aggregate durables less autos category has ratcheted down its pace of sales to a -2.5% growth rate over three months compared to a +8% rate over 6-months But on the nondurable goods side of the ledger, nondurable goods sales excluding petroleum are up at a 12.3% pace over three-months compared to -6.7% over six months. .

All of nondurables have accelerated and sharply over three-months a phenomenon that seems likely to be more related to inflation developments and their knock-on effects. Durable goods major categories have seen no sales accelerations over 3-mos compared to six months but before despairing that result vehicle sales are up at a 17% pace over 3-months, still strong but slowing as the bump up from the Japanese tsunami effects unwinds.

On balance the inventory build-up that saw a 1.2% gain in Oct against sales of 0.8% for wholesalers has been stopped. But since the pace of sales is slowing and since inventory to sales ratio patterns across sectors are sporadic it is not a good time to be too complacent about inventory trends.

A lot of what happens will be determined by end of the year spending patterns and these patterns so far are mixed.

For retailing, a report for which we are still waiting, chain store sales seem to be evaluated as ‘strong’ the overall retail sales gains expected for December are still modest month-to-month and the auto sales while having recovered from weaker levels earlier in the year retreated of slightly month to month.

As a result of these trends we remain cautious about the assessment of inventories. Our own anecdotal experience with post-Christmas shopping was that in the aftermath of Christmas stores still carried an awful lot of merchandise. The usual cat and mouse consumer-retailer game of full price Vs discount makes it look like the best prices were available before Christmas in many stores. So while, to me, (in my personal unscientific, narrow New York observation of trends) inventories did not seen to have been made lean by bulging Christmas sales, yet the post-holiday sales period did not show any evidence of retailers having stress over having too much stock on hand.

So we remain cautious on inventory evaluation.