Business inventories: Which way will the retail wind blow?

Phalguni Soni

How will this week’s consumption indicators impact debt securities? (Part 7 of 8)

(Continued from Part 6)

What is the manufacturing and trade inventories and sales report?

The manufacturing and trade inventories and sales report for January will be released on Thursday, March 13, by the U.S. Census Bureau.

The Manufacturing and Trade Inventory and Sales estimates are based on data from three surveys: the Monthly Retail Trade Survey, the Monthly Wholesale Trade Survey, and the Manufacturers’ Shipments, Inventories, and Orders Survey. Unlike the wholesale trade report, which includes only inventories held by wholesalers, the business inventories in this report represent the combined dollar value of inventories held by manufacturers, wholesalers, and retailers. “Sales” refer to the value of shipments made by manufacturers.


The combined value of distributive trade sales and manufacturers’ shipments for December, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $1,317.7 billion—an increase of 0.1% month-on-month, and 3.8% year-on-year.


Manufacturer and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at $1,707.9 billion at the end of December—an increase of 0.5% month-on-month and 4.4% year-on-year.

Inventory-to-sales ratio

The total business inventory-to-sales ratio came in at 1.30 for December 2013—marginally higher than the 1.29 recorded in December 2012.

What’s the relevance of the wholesale trade and inventories reports to fixed income investors?

Increasing inventories could imply a ramp-up of raw material or finished goods stock in anticipation of future shortages or future demand for finished goods or slowing production and sales leading to a build-up in inventories. An increasing inventories-to-sales ratio may also imply that inventories have grown at a faster pace than sales, which would imply that consumer sentiment is down and the economy may be contracting. Other factors remaining constant, an economic contraction would mean a falling interest rate environment to spur investment and consumption and rising bond prices. A falling inventory-to-sales ratio would imply the opposite, impacting fixed income ETFs like HYG, LQD, and TLT.

Another release this week will be an important signal for companies like Wal-Mart (WMT) and Target (TGT). To read about perhaps one of the most relevant indicators of consumer sentiment, read on to Part 8 of this series.

Continue to Part 8

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