By Martin Crutsinger, AP
WASHINGTON–Wholesale businesses barely increased their stockpiles in November, even though their sales grew strongly.
The data suggest many companies underestimated consumer demand and may boost their stock levels in the coming months. That would lift economic growth. The Commerce Department said Tuesday that inventories at the wholesale level edged up 0.1 percent in November. Sales at the wholesale level rose 0.6 percent after an even stronger 0.8 percent increase in October. The modest increase in inventories pushed total wholesale stockpiles up to US$468.9 billion, an increase of 22.2 percent from the low hit in September 2009. Stockpiles of metals, machinery and clothing increased in November.
Companies tend to build their inventories when they expect stronger sales in the coming months. A number of indicators show the economy has picked up at the start of the new year. Consumer confidence is up, businesses are hiring more workers and the unemployment rate fell in December to 8.5 percent — the lowest rate in nearly three years. Steven Wood, an economist with Insight Economics, noted that wholesalers are being cautious with their inventories. But he said they have grown more quickly than they did in the July-September quarter and that likely contributed to stronger growth in the final three months of the year.
Economists predict the economy grew at an annual rate of around 3 percent. That would be up from the 1.8 percent growth over the summer, when many businesses cut their inventories. The report indicates that it would take 1.15 months to deplete existing stockpiles at the wholesale level at the November sales pace. That is up only slightly from a record low of 1.13 months hit in March and shows businesses still have room to expand their stockpiles. Many businesses reduced their restocking in the summer after consumer spending slowed last spring in the face of higher food and gas prices. The slowdown, along with supply disruptions caused by March’s earthquake in Japan, weakened U.S. manufacturing and contributed to worries of another recession. Stockpiles at the wholesale level account for about 27 percent of total business inventories. Stockpiles held by retailers make up about one-third of the total and manufacturing inventories represent about 41 percent of the total. The Commerce Department will release a more complete report Thursday on November inventories at all three levels.