Highlights of the October report are:
- Total sales declined -4.1%, driven down by durable (-4.2%) and nondurable (-4.1%) goods – the fastest decline since 1992 (when the series was started).
- Ex petroleum – call this core - sales declined -2.9%.
- The big monthly hits occurred in the following categories: automotive (-4.5%), electrical (-1.8%), metals (-5.2%), farm products (-6.1%), and petroleum (-11.2%).
- There were monthly gains in 3 out of 19 categories – kind of like the last men standing – in machinery (+1.6%), drugs (+0.9%), and paper (+1.1%) - but the gains are subject to revision and will probably fall soon.
- I saved the worst for last: The inventory to sales ratio grew to 1.16, its largest value since Feb. 2007. However, without petroleum, the inventories to sales ratio grew to 1.32, its largest value since Jun. 2003.
- Wholesalers slashed inventories in October based on continued worse-than-expected sales figures; this is not good for the fourth quarter GDP report.
Second, inventories are sliding. In the third quarter, inventory build was an important contributor to economic growth; it added 0.89% to overall GDP growth, -0.5%. Going forward, inventory build is expected to subtract from economic growth alongside consumption, investment and exports. Fourth quarter growth is now expected to be even more abysmal.
On Friday, the business inventories report will be released. Since business inventories account for roughly 75% of September’s inventory build (wholesale activity accounts for the rest), this report will confirm the forecast for inventories and sales. It is likely to suggest that the fourth quarter will be weak.