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Economy in Brief

Business Sales Outpaced by Inventories in February, But Trend Acceleration Intact
by Sandy Batten  April 14, 2017

Business sales rose 0.2% m/m (7.1% y/y) in February versus a 0.3% monthly gain in January. For the major sectors, retail sales slipped 0.3% m/m (5.3% y/y) in February while both wholesale sales and manufacturing shipments increased. Wholesale sales jumped 0.6% m/m (9.9% y/y) while manufacturing shipments rose a solid 0.3% m/m (5.9% y/y).

Total business inventories rose slightly more than did sales in February, increasing 0.3% m/m (2.8% y/y), the same monthly gain as in January. The February increase was generally in line with market expectations. Retail inventories also rose 0.3% m/m (3.8% y/y) in February. Wholesale inventories were up 0.4% m/m (3.2% y/y), while manufacturing inventories increased 0.2% m/m (1.3% y/y).

The real story for the outlook for production continues to be the longer-term acceleration of both sales and inventories, and particularly the more rapid acceleration of sales. Sales have risen at an 11.0% annual rate over the past three months, at an 8.9% annual rate over the past six months and 7.1% over the past year. Inventories have also accelerated, but more modestly. They are up at a 4.0% annual rate over the past three months, at a 3.4% annual rate over the past six months and 2.8% over the past year. This same phenomenon is occurring in each of the three major sectors, though the sales-inventories gap is smaller and narrowing in the retail sector.

Faster growth in sales relative to inventories reduces the inventory-to-sales ratio. Indeed the total business I/S ratio has fallen steadily over the past year and the latest reading (1.35) is the lowest since December 2014. The wholesale and manufacturing I/S ratios have exhibited behavior similar to the total while the retail I/S ratio has edged up over the past two months, but remains below levels of a year ago.

This outpacing of sales relative to inventories depletes merchandise on sellers' shelves and eventually leads to new orders which then lead to increased production. This is a virtuous spiral that is occurring at all levels of business and augurs increased industrial activity in the future.

The manufacturing and trade data are in Haver's USECON database.

Manufacturing & Trade Feb Jan Dec Feb Y/Y 2016 2015 2014
Business Inventories (% chg) 0.3 0.3 0.3 2.8 2.0 1.1 3.5
 Retail 0.3 0.9 0.0 3.8 3.4 5.3 3.0
  Retail excl. Motor Vehicles 0.0 0.0 0.3 1.0 1.3 4.0 2.6
 Merchant Wholesalers 0.4 -0.2 0.8 3.2 2.5 1.2 5.8
 Manufacturing 0.2 0.3 0.3 1.3 0.1 -2.6 1.8
Business Sales (% chg)
Total 0.2 0.3 2.1 7.1 0.0 -2.8 2.8
 Retail -0.3 0.4 1.3 5.3 2.7 1.6 3.9
  Retail excl. Motor Vehicles 0.1 1.0 0.7 5.9 2.4 0.2 3.2
 Merchant Wholesalers 0.6 0.3 2.4 9.9 -0.5 -4.9 3.6
 Manufacturing 0.3 0.3 2.5 5.9 -1.8 -4.4 1.2
I/S Ratio
Total 1.35 1.35 1.35 1.41 1.39 1.38 1.31
 Retail 1.48 1.47 1.46 1.50 1.49 1.46 1.43
  Retail excl. Motor Vehicles 1.24 1.24 1.25 1.30 1.27 1.27 1.24
 Merchant Wholesalers 1.28 1.28 1.29 1.36 1.33 1.32 1.21
 Manufacturing 1.31 1.31 1.31 1.37 1.35 1.36 1.31
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