Wholesale Inventories Drop MoM First Time in 9 Months

Tyler Durden's picture

As we noted last night, inventory destocking is the great unknown as far as consensus expectations and the wholesale inventories data this morning just confirmed that this is a worrying trend. With the first drop MoM since September 2011 and dramatically missing expectations, inventories dropped 0.2% and perhaps more worryingly - given the drop in inventories - is the critical inventory-to-sales ratio has now risen two months in a row as clearly sales are dropping faster than companies were expecting.


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youngman's picture

People who whod the trade data this am..to me its we are shutting down.....manufacturing is slowing..

Thomas's picture

Who needs inventory when we can get rich shuffling money around and providing services to each other?

BTW-Heads up ZHers. Reading White's "Clash of Economic Ideas". It's very good so far for those who like a little wonk with their historical treatises.

Squid Vicious's picture

yes of course... paging dr. ben shalom on the fyat phone...

Hype Alert's picture

Hell, everything's bullish.


On the one hand reducing inventories says you expect a slowdown so you don't build it.  As someone else posted, manufacturing slowing.  On the other hand, I expected inventories to be up if people aren't spending and sales are slowing.  But clearly, if they're not stocking it, they don't expect to sell it.

adr's picture

Previous production inventories are way up and retailers aren't ordering anything. There is more unsold inventory sitting in warehouses than almost any time in history. If you haven't sold what you produced before, you can't order new stuff. So manufacturing slumps and new inventory numbers drop.

When a company can't sell its inventory, it writes it off as a loss and the inventory moves off the books. It still exists, but not on paper. That is how inventories can decline along with sales. Which seems to not make sense at first glance.

Jason T's picture

wage growth keeps declining.  

foodstampbarry's picture

Bull$hit, I just got a 25 cent an hour raise. I now make 9.35/hr. Praise be Obama! Minimum wage jobs for all!

Shizzmoney's picture

Wait, so corporations (who are in debt), that pay no taxes to the government (which is in debt), that "prints" money given to big banks (who are overleveraged, which is basically debt) are having problems moving inventories to consumers (who are in debt) and workers (who are underpaid and are in debt)?

I don't understand.

adr's picture

Sales are not dropping faster than companies expected. Sales are doing exactly what companies expected. They just hoped that by some miracle they were wrong.

For how forward looking "The Market" is supposed to be, it seems to be completely blind to the future. If you were paying attention to retail sales trends and real numbers last holiday, you would have known that retail sales would crater this year.

Business is always about managing expectations and needs. In the case of mass retail today, you need to figure out consumers needs more than 12 months in advance. Target is starting to work on back to school for next year. Which means for the past few months you needed to be working on your line to present to them. In October you will find out what the buy for next year will be. You will receive an open ended PO with a delivery date in July.

Now comes the tricky part. The PO may be reduced or expanded depending on how sales go in the spring. Your production window is 90 days. If the PO is expanded in April or May, you won't have enough time to produce enough product. If the PO is reduced, you could be sitting on a whole lot of inventory. So what do you do?

In the case of many companies, they were lured into overproducing inventory in 2011 by buyers that were assured by the guys upstairs, that the economy was going to explode up in 2012. The buyers were hesitant because they saw real dollar sales plummet at the end of 2011. The placed massive orders for 2012 and sales tanked. POs were cut back leaving vendors with record inventory levels.

The massive inventory build sent a false signal to Wall Street when prduction expanded in China. The problem is when you overproduce invetory, you have to figure out how to sell what you got before you order more. If you have to liquidate the inventory, you are going to have cash flow issues when you need to purchase the next round of products.

The funny thing is that real time sales data exists and it is used by sales managers every day. You can get real time information on your product down to sales per day at any store your goods are in. Retail buyers have this information on anything they buy. They can see trends as they are happening. But this information never makes it out of insider corporate meetings. The reason is this data shows a far different reality than the version Wall Street is trying to sell.

Real dollar sales and units sold to US consumers has been declining since 2008. Inventory buildups and units per store have exploded since 2009. Real sales have been declining, but stores have been stocking more inventory. That doesn't make sense, unless retail inventory is really just an extension of the Wall Stree ponzi.

OldE_Ant's picture

It means the clearance sales this year should be frequent and really good for buyers.  It could mean real price declines as well.

If the businesses can't move the inventory at cost, they'll have to move it below cost (which will mean significant losses at retailers just to get cash flow).   It only takes one or two of these kinds of events before a retailer gets the hint - don't buy inventory you can't sell.

I'm just starting to see hints where various stores don't have certian things in stock anymore (they have to be 'special' ordered, payment/deposit put down etc.).  Hell if I have to wait for a special order it means - you guessed it - I'll go online and do my shopping.   This should be slightly bullish for online retailers and very negative for anyone with a store front.

This will also mean more pressure on retail real estate.  I know a few business owners right now regnegotiating their retail leases down in cost.  Not because it'll put tons of money in their pockets - but simply because business cash flows arn't as good as last year.   These same businesses are ready to move if necessary and are looking to get storefront rental costs down by at least 25% and to reduce the contract lock in periods (i.e. from 2-5-10 years to year to year).  Regarding real estate I've already seen a lot of govt and private sector downsizing of office space and in my area the number of retail rentals available has grown dramatically.  In fact a few of the retail units are converting to residential by retro fitting bathrooms, plumbing, window shades (divider walls) etc.  Interestingly these retro'd units only took about a year to be fully occupied.

End of Line

Shizzmoney's picture

It means the clearance sales this year should be frequent and really good for buyers. 

I'm even seeing "sales" and "clearance specials" at discount retailers like CW Price and Dollar Tree.  The Ocean State Job Lot where I worker actually just closed up shop (and got replaced by a Harbor Freight Retail - A Clearance version of Home Depot, if you will).

I thought the whole point of the store is that, the entire thing is already on sale!

DosZap's picture

This should be slightly bullish for online retailers and very negative for anyone with a store front.

Most Store front businesses are also Online now.

Esp the larger retailers.They were forced to ,or go out of business.

Dareconomics's picture

This is the best post on this topic. According to the writer's logic, manufacturers will be slashing prodution so they do not get burnt with inventory again. This means continued weakness into the end of the year.


svc101's picture

The private sector is doing fine.

Nobody For President's picture

Without ZH, I would have never known that there are so MANY varied and rich byways of the great Ponzi...