Wholesale Trade Report Worse Than Expected: 2nd Quarter Recovery Thesis Nearly Dead

The second-quarter recovery fantasy took another smack in the face today with wholesale trade data.

Sales fell 0.4% and inventories fell 0.5%. In addition, the Census Department revised March inventories from 0.2% to 0.1%.

The Econoday consensus estimate was for inventories to decline 0.3%.

In yet another negative for second-quarter GDP, wholesale inventories fell a sharper-than-expected 0.5 percent in April. The draw is centered in autos but also includes other durable goods and nondurable goods as well. Sales at the wholesale level were weak, down 0.4 percent in the month and justifying the inventory draw. The wholesale stock-to-sales ratio holds unchanged at a still lean 1.28.

Careful inventory management is a plus for the economy but in this case points to caution. When combined with a sizable draw in retail inventories and only a small build for factory inventories, today’s data point to the first draw in total business inventories since October last year (inventory draw is a negative in the GDP calculation). Final and revised inventory data for April will be released next week with the business inventories report.

Careful Inventory Management in Pictures

Second Quarter Reality

1. Factory Orders a 2nd Quarter Disappointment: “High-Flying” Regional Nonsense
2. Payrolls “Unexpectedly” Weak, Negative Revisions, Earning Poor: What Happened?
3. Trade Deficit Widens: Cascade of Bad News Accelerates, Trump Will Howl
4. Construction Spedding: Construction Spending Falls Sharply, March Revised Higher: Construction Spending Mysteries
5. Motor Vehicle Sales: Motor Vehicle Sales Flat, Hope Turns to Second Half: What About Fleet Sales? Incentives?
6. April Durable Goods shipments down 0.3%, new orders down 0.7%: April Durable Goods: Yet Another Weak Second-Quarter Report 
7. Wholesale Inventories: Down 0.3% in April. March revised lower from 0.2% to 0.1%.Retail Inventories: Down 0.3% in April. March revised lower from 0.5% to 0.3%. For details, please see Fed Eyes Second Quarter Recovery, Expects Trump Fiscal Policy Will Expand Economy
8. Trade deficit in April widens by 3.8% with exports down and imports up: Trade Deficit Widens, Exports Weak: Economists Miss the Mark
9. Tax Receipts: Federal Tax Receipts Running Below Expectations
10. April New Home Sales: New Home Sales Contract 11.4%: Sales Barely Up Year-Over-Year
11. April Existing Home Sales: New Home Sales Contract 11.4%: Sales Barely Up Year-Over-Year
12. April Existing Home Sales: Spring Housing Flop: Existing Home Sales Decline 2.3 Percent, Inventory Issues Persist
13. April Housing Starts: About that Strong April Recovery: Housing Starts and Permits Flop, March Revised Lower
14. April Empire State Manufacturing Survey: Empire State Manufacturing Survey Turns Negative: Welcome News?
15. April Retail Sales: Sales were at least positive (+0.4%), but they were well under economists projections: Retail Sales Disappoint Again: Department Stores Clobbered in 2017

Today’s wholesale trade report was a lower revision to the preliminary numbers in point number 7.

Mike “Mish” Shedlock