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Economy in Brief

U.S. Wholesale Inventories Signal Smoother Sailing
by Robert Brusca June 7, 2007

Wholesale inventory trends tell a very positive story. We take out the volatile and special readings from autos and petroleum to look at aggregated stocks and sales trends for all other wholesale classifications. Once done we obtain the chart plotted on the left that shows sales have speeded up as inventories have slowed. They have done that now for the second month in a row on six-month trends. Moreover, it shows that the ramping down in inventories has hit a low and apparent turning point in its decelerating rate of growth, yet another indication that the industry might be through its adjustment phase.

The table below on inventories and sales behavior provides industry detail and time horizon cohorts for that detail. Over three months all main categories, save two, show that sales growth has surpassed inventory growth. The trend of sales (S) outstripping inventories (I) is widespread. Indeed, the two categories that have sales growth above inventory growth are not deficient in their rate of growth by much. Six-month horizons also are very solid. The S>I growth trend seems pretty solid and well-established for now.

Additionally the I/S ratios are in good shape. The overall ratio for all of wholesaling is at a new low dating back to 1998. Durables excluding autos are in their bottom 18 percentile and for nondurables excluding petroleum the ratio is in its bottom 10 percentile.

Conclusion: Overall inventories are in good shape relative to sales. The recent growth rates of inventories relative to sales are settled into a good set of relationships as well. And best of all is the fact that sales growth is on an uptrend. The wholesale report is quite constructive and upbeat.

Inventories: Wholesaling
I:S ratio
All growth rates annualized Inventory-&-Sales Trends: Wholesalers Percent of
2007.Apr 3-mos 6-mos 12-mos Range
  Sales Inventories Sales Inventories Sales Inventories 1998-date
All Wholesaling 19.3% 4.3% 12.8% 4.6% 8.8% 7.1% 0.0%
Durables 9.2% -1.7% 7.2% 0.4% 7.8% 5.2% 7.8%
Durables less autos 9.2% 2.2% 7.0% 3.0% 7.6% 7.8% 19.1%
Autos 9.4% -21.0% 8.0% -13.1% 8.7% -7.6% 0.9%
Computers 3.6% 5.1% -0.3% 0.8% 5.4% 10.6% 38.3%
Machinery 3.5% -2.5% 8.4% 2.3% 5.7% 7.7% 33.0%
Other Durables 11.8% 4.2% 7.8% 3.5% 8.5% 7.6% 14.8%
Non-durables 29.9% 15.7% 18.6% 12.4% 9.7% 10.4% 5.2%
Non-durables less Petrol 17.0% 12.2% 12.3% 12.9% 9.8% 11.0% 9.6%
Petroleum 94.5% 58.5% 46.4% 8.2% 9.3% 4.7% 45.2%
Groceries 21.7% 23.4% 21.8% 20.7% 15.3% 17.1% 50.4%
Other Non-durables 15.0% 9.6% 8.5% 11.0% 7.7% 9.6% 11.3%
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