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Tuesday, January 13, 2009

Wholesale Trade: Sales Cliff Dive

I'll file this as a "better late than never post". Reuters reported last Thursday:

U.S. wholesale inventories fell in November while sales posted a record decline, a government report said on Friday.

The Commerce Department said U.S. November wholesale inventories fell 0.6 percent after a revised 1.2 percent decline in October. November wholesale sales plunged a record 7.1 percent after falling a revised 4.5 percent in October.

Wall Street economists surveyed by Reuters expected wholesale inventories to fall 0.8 percent in November. A month earlier, the department reported October inventories were down 1.1 percent while sales fell 4.1 percent.
Looking at the rolling 3-month change in wholesale trade sales, we see levels down almost 50% on an annualized basis.

Breaking out the sales by sector, we see there was "nowhere to hide" with petroleum and autos leading the way.

The drop appears to have surprised businesses, as inventory spiked which will add to the deflationary pressures we've seen over the past few months (PPI should verify this with Thursday's release) as businesses attempt to shed these excess inventories as a discount.

Why the huge drop in sales? Consumers are less willing (or able) to borrow to make purchases. MSNBC reports:
Consumer borrowing dropped by a record $7.94 billion in November, a Federal Reserve report showed on Thursday, the latest evidence that households were unwilling or unable to take on more credit.

That was the biggest decline since the data series began in January 1943, and was far steeper than the $0.5 billion dip that economists polled by Reuters had expected.

The November decline represented a drop of 3.7 percent, the largest percentage fall since January 1998, when it was down 4.3 percent.

Source: Federal Reserve, Census