Latest Inventory Data Offers Mixed Signals for Merchants

The latest government data on inventories moving through the channels offered up mixed signals for merchants, particularly for nondiscretionary items — or at least that was the case moving into the holiday season.

The inventory data offered up by the Census Bureau represents nondurable and durable goods in various verticals and channels, held by wholesalers, yet to be sold to merchants. As with any supply chain, wholesalers are the bridge between manufacturers and retailers. 

Generally speaking, a decline in the wholesale inventory levels means that goods are moving to merchants’ shelves. If there’s no drawdown of wholesale items, retailers have pulled back a bit because they either are experiencing or are anticipating they will see tempered demand from their customers. 

The headline number from this week is that U.S. wholesale inventories were down 0.2% in November, as measured month to month, which follows an October where inventory levels were unchanged. 

One wild card is what happens with tariffs; it’s possible that December’s data (and beyond) will see a restocking of goods, including imported items that would be more expensive should the incoming administration levy tariffs.

Sell-Through of Durable Goods

November’s levels indicated that durable goods inventories were 0.4% lower. That’s largely due to vehicles, where that line item was lower by more than 2%. Strip out the autos, and inventories were actually higher for longer-lasting items, by 0.6%.

Nondurable items — clothes, for example, or groceries — saw a 0.2% gain. Apparel inventories were up 0.8%, miscellaneous non-durable goods inventories were 0.5% higher. Alcohol was 1% higher.

It’s important to look at the inventory/sales ratio. Increasing or relatively unchanged ratios give an indication of how long it would take to clear wholesale inventory. The higher the ratio, the longer it takes, and it’s possible that there are slower sales occurring at the end-customer level.

The Commerce Department reported that the November inventories/sales ratio for merchant wholesalers was 1.33, roughly level with the October reading of 1.34. The ratio ticked up slightly, month over month, for apparel, to 2.15, from 2.11 in October; there was a similar increase in alcohol and a slight bump in groceries. November’s retail data, as PYMNTS reported, showed that overall retail sales surged 0.7% in November. But spending on clothing and apparel dipped 0.2%; health and personal care spending was flat month over month.

What Consumers Are Saying

We’ll know more as earnings season gets underway starting next week. But there are already signs that there may be items moving back through the channel: As PYMNTS noted in recent days, retailers are experiencing a post-holiday surge in returned items.  Data shows a 28% hike in returns over last year, and consumers have already returned $122 billion in merchandise. Returns typically land back into the hands of the merchants, which then means that they’ll look to clear what’s on hand before ramping up orders with their wholesalers.

Elsewhere and as noted here, even carmakers and dealers are grappling with a plentitude of supply that scarcely would have seemed imaginable a few months ago: They’ve turned to promotions, as reported last month, to move inventory. Car buyers got — on average — about $3,400 in discounts and other incentives. That’s up more than 25% from the previous year, according to reports.

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