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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