DEEP DIVE: How's Business?

Every month, the Census Bureau releases its “Advance Monthly Sales for Retail and Food Services.” The latest report was released on June 15 at 8:30 a.m. An hour and a half later every month, the Census Bureau releases its “Manufacturing and Trade Inventories and Sales” report—for the previous month. In other words, on June 15, Census reported retail sales through May and business sales of goods through April. The retail sales report tends to get all the attention by the media and by economists because it is one month more current than the more comprehensive business sales report. But Debbie and I find that there is a wealth of useful information about the economy in the latter report.

What we see in the business sales report is increasing signs that inflation has been boosting the nominal value of these sales but weighing on their inflation-adjusted value. Real inventories are starting to rise relative to sales, especially among some retailers. These businesses are likely to respond to unintended inventory accumulation as they always do, i.e., by cutting prices to clear them. So the good news is that some of the economy’s inflationary pressures should abate. The bad news is that economic growth will suffer, increasing the risks of a typical goods-led recession.

Let’s examine the latest business sales and inventories data, both nominal (available through April) and real (through March).

(1) Business sales

Manufacturing and trade sales rose 13.8% y/y to a record-high $21.8 trillion (saar) during April (Fig. 1). However, real business sales was unchanged on a y/y basis over the three months through March (Fig. 2). That’s down from the post-lockdown high of 16.2% during May 2021. This growth rate in real business sales closely tracks the growth rate in real GDP of goods, which was up 4.5% y/y through Q1.

Here are the y/y growth rates in current dollars and inflation-adjusted dollars for the three major components of business sales through March: manufacturing shipments (13.9%, -2.7%), wholesale sales (22.3, 2.5), and retail sales (5.2, -7.0) (Fig. 3 and Fig. 4).