Still No Growth In Wholesale Sales, Inventories May Start To Weigh
Alhambra Investment Partners, LLC | Nov 10, 2016 12:33AM ET
Wholesale sales were flat in September, and flat overall for the quarter. They had declined sharply in July, rebounded in August, only to go nowhere for all the trouble. It is perfectly reminiscent of this whole economy, which fell in 2015 and then despite all projections otherwise never got back up. The best that can be said of it is that it isn’t right now getting weaker.
But while that may be true as a narrative, it may not be in what will actually count in the near term. No growth in a second year after some sharp contraction the year before means many businesses can no longer put off reality. Inventories have been accumulating at very concerning levels on what was surely optimism that all that disruption was, as Yellen kept claiming, just a temporary condition. Realizing that it wasn’t “transitory”, those same businesses who had been expected actual sales growth by now can no longer afford to keep waiting for what is now broadly accepted as never coming.
Inventories that had been holding around flat in year-over-year terms now appear to be rolling over. Overall, wholesale inventories were down slightly (NSA) in September, as well as in total without petroleum. Inventory had peaked last September, fell slightly at the beginning of the year, and then rebounded somewhat during spring on what might have been renewed optimism. With sales instead continuing flat at best, that might have been the last chance before more serious adjustments begin.
The inventory-to-sales calculation for the very important motor vehicle sector actually improved to the best level in about a year, but given the typical volatility in the data it is difficult to determine whether that is actual, significant progress or just the usual statistical noise. And even if it was a real change, there are more indications it might be because of these increasingly numerous production adjustments .
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Read market moving news with a personalized feed of stocks you care about.Get The AppThis week, Ford Motor Company (NYSE:F) is shutting its Louisville, Kentucky, factory building the Escape and Lincoln MKC sport utility vehicles, as well as two plants in Mexico that make the Fusion sedan and Fiesta subcompact, according to an e-mailed statement. Next week, the second-largest U.S. automaker said, it will close the F-150 factory near Kansas City for seven days. And starting Oct. 31, the Louisville plant will be idled for another week, Ford said.
The plant closings follow last week’s idling of Ford’s Mustang factory in Michigan after sales of the sports car plunged 32 percent in September. U.S. auto sales are slowing as many analysts predict the industry won’t match last year’s record of 17.5 million cars and light trucks.
In news reported by Reuters today, General Motors seems to be starting the same kind of modifications to its production schedules so as to take account of both sales and inventories as they are without any more possible Yellen influence.
General Motors Co (NYSE:GM) plans to lay off 2,000 employees at two U.S. auto plants in early 2017, the automaker said on Wednesday.
GM said it will furlough the employees when it cuts the third shift at its Lordstown, Ohio and Lansing, Michigan plants in mid-January.
The Lordstown plant builds the compact Chevrolet Cruze, whose U.S. sales through October were down 20 percent. The Lansing Grand River plant builds the Cadillac ATS and CTS, whose sales were down 17 percent through October.
These are the likely scars from the effects of the “rising dollar”, as but a continuation of monetary difficulties that established the unusual economic conditions in the first place. In terms of wholesale sales, the economy may not appear to be getting weaker right now, but such a relative view discounts second and third order effects that are still reverberating related to what just happened as well as the (literally, in some cases) unbelievably weak position we were already in.
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