Caterpillar Retail Sales Decline For Unprecedented 42nd Consecutive Month

There was some glimmers of hope that after a modest rebound in North American and Chinese retail sales of industrial bellwether Caterpillar in the early part of the year, that the manufacturing landscape may be finally changing as demand for CAT heavy manufacturing and construction equipment re-emerges. Alas, those hopes were doused following the latest, May, retail sales reported by Caterpillar earlier today. These showed that after sliding "only" 8% in March, US retail sales have once again started to deteriorate, sliding -11% in April and -12% in May. Perhaps more notably, after declining just 10% in April, retail sales in the Asia/Pacific region - read China - are once again accelerating their drop, and were down 13% in May.

The OEM data confirms a troubling trend Evercore ISI recently highlighted regarding rising inventory of CAT equipment: according to Evercore, when updating the CAT dealer website used inventory data, it was "struck by how sustained the growth has been in CAT dealers' used equipment inventory in North America" as per the graph below (at least based on how good the dealer website data is and how heavily this listing is used by the dealers as not all use it as heavily as others though clearly North American CAT dealers use it more than international CAT dealers).

Evercore's take: "continued negative CAT dealer trends like these used dealer inventory datapoints, all on top of my long held view CAT's backlog is running low relative to 2016 sales guidance and/or investor hopes 2017 is an up year all suggest expect the next sales guidance revision by CAT to be a negative one."

More troubling, here is the chart that confirms that any light at the end of the industrial and heavy manufacturing tunnel is most likely just one of the few trains still running: there are now 42 consecutive month of CAT retail sales declines. This has never happened in the company's history.

 

Finally, here is Bloomberg's analysis of the data:

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