The question won’t be whether the August 27th revision announcement for Q2 GDP brings a significant drop; it’s just how far it will fall after final June numbers get calculated into the analysis. The latest from manufacturing and trade sales suggests that the revision may be even sharper than first thought. Commerce announced a 0.6% decline in this economic indicator — and that business inventories grew:
Sales. The U.S. Census Bureau announced today that the combined value of distributive trade sales and manufacturers’ shipments for June, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $1,080.5 billion, down 0.6 percent (±0.2%) from May 2010, but up 9.2 percent (±0.5%) from June 2009.
Inventories. Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,359.9 billion, up 0.3 percent (±0.1%) from May 2010 and up 0.2 percent (±0.4%)* from June 2009.
We already knew from earlier indicators that manufacturing slowed in May and June, but this shows the extent of the decline. The previous metric focused on orders rather than sales and shipments, which gives a better indication of future direction — and that fell 1.2% in June. With business inventories climbing, it explains why orders fell more sharply and emphasizes the fact that it may be a while before manufacturing demand increases.
Sales fell across all categories, according to Commerce:
- Manufacturers: -0.8%
- Retailers: -0.3%
- Merchant wholesalers: -0.7%
Retail inventories grew 0.8% in June from May, and perhaps most gloomily, 0.2% from last June. They also grew 0.5% in May, which means that retail demand has fallen short of expectations from the spring, and inventory won’t need to be replaced as quickly. It’s another reason why orders are down and probably will remain down, especially after noting the disappointing advance retail numbers from July.
These numbers will get factored into the Q2 GDP revision. JP Morgan had warned that the revised number could fall below 1% if the sales figures from June didn’t provide enough of a boost to offset other bad numbers in exports and other areas. This doesn’t appear to be a reason to expect a better revision than JPM assumed earlier in the week, although it’s hard to know whether the bad news exceeded the assumptions of Commerce in the advance GDP figure.