Wholesale Trade Report

By Ryan Barnes

Release Date:	On or around the 9th of the month
Release Time:	10am Eastern Standard Time
Coverage:	Two months prior (report released six weeks after period end)
Released By:	U.S. Census Bureau
Latest Release:	http://www.census.gov/mwts/www/currentwhl.html

Background
The Monthly Wholesale Trade Report is based on a monthly survey of about 4,500 wholesale merchants operating in the United States. The sample group is updated quarterly to reflect new businesses in the marketplace, and includes importers and exporters. While some wholesale companies do sell directly to end consumers (such as Costco), most companies surveyed here sell to retail businesses as their primary source of revenue.

The report presents three statistics to investors; monthly sales, monthly inventories and the inventory to sales ratio. The data is broken down into durables and non-durables, and from there about 8-10 industries within both. Coverage is nationwide

Data is released about six weeks after the end of the month and the report will show any revisions for the previous two reports as well. Percentage changes are shown from the prior month and year-over-year to smooth out volatility. Figures are based on current dollar values for products when estimating sales and inventory levels, which is a change from other indicators that may value product based on volume.

What It Means for Investors
The inventories-to-sales (I/S) ratio is probably the most-watched variable after the Durable Goods Report has come out for the month to shed some light on the durable sales figures. Investors in non-durable industries like beverages and apparel will be happy to see some good representation in the Monthly Wholesale Trade Report.

The I/S ratio does a good job of indicating any supply/demand imbalances that exist in the economy. For example, if retail demand is higher than current production levels support, the I/S ratio will show this by falling (in this scenario, an I/S ratio of 1 means that current inventory levels can meet one month of current demand). A rising I/S ratio should be met with higher retail demand or corporate profits could be contracting, as extra costs to maintain inventory or slow production add up. Because of this, the I/S ratio is labeled as a lagging indicator by the Conference Board and most economists. According to the Conference Board, "because inventories tend to increase when the economy slows and sales fail to meet projections, the ratio typically reaches its cyclical peak in the middle of a recession."

It all depends on where the economy, or even a particular industry, stands in relation to earnings expectations and potential. As long as the I/S ratio does not change dramatically from month to month, the report will not elicit a strong response in the stock and bond markets; its biggest benefit is the ability to predict future GDP levels or its utility in researching specific industry trends.

Because inventory values are measured in current dollars, price changes month to month will change inventory values even if the amount of supply stays constant. This is especially important to note for industries such as chemicals and petroleum when viewing this report.

Strengths:

• There is an Annual Benchmark Report for Wholesale Trade released every spring that includes more detailed information such as annual sales estimates and gross margins for the industries that are sampled in the monthly report
• Provides a good snapshot of the "middle" of the supply chain for many industries - up the channel from manufacturing, but not yet retail.
• A good indicator of supply/demand imbalances
• Long time series (since 1946) available
• Data provided "raw" and with seasonal adjustment

Weaknesses:

• Longer time lag than most
• Industry breakdowns not too specific
• The previously-released Durable Goods report will have already shed some light on wholesale results

The Closing Line
Monthly Wholesale Trade Report is not potent enough to move the markets, but it is very useful when taken in context with other industry-specific indicators to gauge sales and demand; it is also helpful in predicting quarterly gross domestic product (GDP) figures.

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Trade Balance Report

By Ryan Barnes

Release Date:	International Trade - around the 19th of the month
Release Time:	International Trade - 8:30am Eastern Standard Time
Coverage:	International Trade - two months prior
Released By:	Bureau of Economic Analysis (BEA)
Latest Release:	http://www.bea.gov/international/index.htmhttp://www.census.gov/foreign-trade/www/press.html

Background
Investors and policymakers are increasingly using trade balances and information as a way to determine the health of the U.S. economy and its relationship with the rest of the world. The indicator within the Trade Balance Report that is most well known is the nominal trade deficit, which represents the current dollar value of U.S. exports minus the current dollar value of U.S. imports. The report also covers trade balances for services, such as financial and informational management, of which the U.S. is currently a large exporter, creating a surplus in this category. In the physical goods category, the largest components of the monthly nominal value are for consumer goods and energy (petroleum).

There are several different aggregate measures of trade balance that are recorded and presented in the media, but the one that is most cited will be the current account,a measure of the net of physical goods trade, services trade, investment income and unilateral transfers. A more detailed breakdown of the financial receipts between the U.S. and abroad is available quarterly, summarizing the monthly data and reporting adjustments as needed; it is also released by the Bureau of Economic Analysis (BEA).

What it Means for Investors
The U.S. has been running a trade deficit for more than 20 years (and a current account deficit for some time as well), set against the backdrop of a long-term U.S. economic expansion. As a nation, the U.S. imports more than it exports, which, in itself, is not a bad thing. Because the U.S. economy has been expanding for so long, most other nations have not been able to keep up, meaning that U.S. demand for things as a nation is higher than other nations' demand for U.S. goods. What causes worry among some is the long-term trend of more money flowing out than coming back in.

The consensus is that the trade deficit must be balanced out by an equal dollar amount of foreign investment in U.S. assets. For example, if the U.S. spends $1 billion dollars to purchase computers from Japan, by definition, Japan is holding $1 billion U.S. dollars or other dollar-denominated assets. In practice, most of the balance in trade is made up by foreign countries holding U.S. Treasury securities. But when interest rates are low, our debt is not as attractive on a risk-adjusted basis, creating concern that our investments will no longer attract foreign ownership, causing the value of the dollar to drop and leading to decreased world purchasing power.

The current account as a percentage of total gross domestic product (GDP) is an important metric because it shows how large the current account number is in relation to overall output in the economy.

The Trade Balances Report can move the markets upon release if the data shows a marked change from the prior period. Compared to other indicators, this report is relatively hard to estimate outside of petroleum, so some surprise factors can occur from time to time. Most investors want to see the trade balance maintain current levels or fall, as it is a sign that exports are rising, and the companies who export are increasing sales in those areas of the world.

Strengths:

• Monthly releases are concise and give results in nominal (dollar) terms.
• Highlights which countries make up the largest percentages of the balance, as well as rates of change
• Results shown against the backdrop of the past six months
• Trade represents approximately 25% of total economic activity and is a large component of GDP.

Weaknesses:

• Monthly report doesn't show a complete transaction reconciliation (quarterly release does).
• Inconclusive as to the long-term effects of the stock market and economy of a trade deficit or surplus.
• Volatile due to oil prices and seasonality

The Closing Line
The Trade Balance Report can give valuable clues to future swings in GDP not explained by internal consumption and production, so the report helps to "close the loop" on GDP estimation variables. The more investors know about trade balances and how policy makers interpret the data, the more helpful it becomes in making investment choices.

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Productivity Report

By Ryan Barnes

Release Date:	Approximately five weeks after previous quarter's end
Release Time:	8:30am Eastern Standard Time
Coverage:	Quarterly; revisions about eight weeks after quarter's end
Released By:	Bureau of Labor Statistics (BLS)
Latest Release:	http://www.bls.gov/news.release/prod2.toc.htm

Background
The Productivity and Costs Report is a quarterly release from the Bureau of Labor Statistics (BLS) that measures the level of output that is achieved by businesses per unit of labor. In this context, output is measured by using previously-released gross domestic product (GDP) figures; input is measured in hours worked and the associated costs of that labor. The unit labor costs that are provided take into account more detail than is provided in the earlier labor reports, including the effects of employee benefit plans, stock options expensing and taxes.

Percentage changes, presented in annualized rates, are the key figures released with this report. Separate productivity rates are released for the business sector, non-farm business sector and manufacturing. Manufacturing is kept separate because unlike the rest of the data, total volume output is used instead of GDP figures, and it also shows the highest volatility of any of the industry groups.

Productivity figures are provided across the economy as a whole, as well as for major industry groups and sub-sectors - it is a very thorough and detailed release, which is the main reason for the long time lag between period end and data release. The BLS will begin with total GDP figures, then remove government production and non-profit contributions to arrive at a GDP component that represents just "corporate America".

What It Means to Investors
Increased productivity is the ability of a company to achieve more output with the same workforce level. Strong productivity gains have been one of the most important reasons that the U.S. economy has expanded for the past 25 years. Productivity gains have historically led to gains in real income, lower inflation and increased corporate profitability. A company that is increasing output with the same number of hours worked will likely be more profitable, which means that it can raise wages without passing that cost on to customers, which keeps inflation pressures down, while adding to GDP growth.

The productivity report does not give investors any new data sets; its value is in the calculations and derivations the BLS computes on previously-released data.

Productivity is not labeled as a leading, lagging, or coincident indicator, as the figures are derived from the components of previous indicators, including GDP, the Consumer Price Index (CPI) and the employment cost reports.

The release will rarely be a big mover of the markets; GDP and labor reports will have already been released, and gains in GDP tend to be a fairly accurate indicator of productivity gains. The revised Productivity & Cost Report (released about one month after the initial release) will often show a marked change from the initial release, as any revisions to the GDP or labor reports will change the function used to calculate productivity.


Productivity rates are volatile, not only quarter to quarter, but also within the various stages of the business cycle. A big challenge for economists and investors is separating out short-term changes in productivity due to cyclical factors from the independent long-term rate of productivity.

Strengths:

• Presents the results of many complex calculations that are difficult for investors to compute on their own
• Productivity gives good insight into inflationary pressures, and how much GDP can grow without causing concurrent gains in inflation.
• Jumps in productivity tend to make their way to corporate bottom lines quickly via margin expansion.
• Release shows results with and without the effects of inflation
• Detailed productivity measures at the industry and sector level allow investors to analyze the relative productivity performance of many of their holdings.
• One of very few indicators that shows results compared to other advanced economies; shows how the U.S. stacks up against the world in terms of productivity gains.
• Productivity results represent the lion's share of total GDP (about 75%); only government results and nonprofit groups are removed from calculations.

Weaknesses:

• Not a timely indicator; first report comes five weeks after the quarter, and the revised report nearly two months
• No new series of data is released, only derivations of previous data sets
• Can be very volatile quarter to quarter; long-term measurements are the most effective use of this indicator when analyzing sustainable, long-term rates of productivity growth

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