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Sales up; inventories lean

Dec. 13, 2005
Two Census Bureau reports released today indicate that freight conditions could be relatively strong in the first quarter of 2006

Two Census Bureau reports released today indicate that freight conditions could be relatively strong in the first quarter of 2006. One report indicates that November retail sales increased at a seasonally adjusted 0.3%. Another report says the total business inventory-to-sales ratio in October was 1.25, a sign that the supply chain remains lean.

On the surface, the retail sales report appears to be positive, but the 0.3% increase fell short of expectations from Dow Jones Newswires and CNBC of a 0.5% jump. If actual sales fall short of retailer forecasts, retailers will be left with excess inventory going into the first quarter. This in turn would contribute to a slower freight environment during the first quarter, when freight activity normally lulls after the holiday rush.

Also of concern is that retail sales declined 0.3% when autos are excluded. However, during November consumers saw significant declines at the gas pumps. Excluding autos and gasoline stations, retail sales advanced 0.5%, implying that falling gas prices had freed up consumer budgets.

Auto sales advanced 2.6% on aggressive discounting. Electronics and appliance stores increased 0.5%; health and personal care sales expanded 1.1%; clothing sales gained 0.2%; and general merchandise sales rose 0.1%.

Some segments suffered as furniture sales dropped 0.3%; sporting goods, hobby, book and music sales shed 0.6%; and gasoline stations plummeted 5.9%.

The Census Bureau’s business inventory report indicated that October low inventory-to-sales ratio of 1.25, equal to that of September. A low ratio means there are more sales compared to inventory, which indicates a favorable freight environment.

“The government reported businesses were lean in the supply chain, which is good for fleets,” Chris Brady, president of Commercial Motor Vehicle Consulting told FleetOwner.

“That implies freight volumes will grow at the same rate or faster than that of retail sales,” Brady said. “The kicker is how much high energy prices will impact household spending through the remainder of the holiday shopping season.”

About the Author

Terrence Nguyen

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