BUSINESS

Wholesale inventories increased 0.4 per cent in January as sales fell for first time since May

03/09/2012 10:45 EST | Updated 05/09/2012 05:12 EDT
WASHINGTON - Wholesale businesses increased their stockpiles in January although sales fell for the first time in eight months.

Inventories at the wholesale level increased 0.4 per cent in January following an even larger 1.1 per cent gain in December, the Commerce Department said Friday. Sales dipped a slight 0.1 per cent, the first drop since a 0.3 per cent fall last May. Sales had risen a solid 1.4 per cent in December.

The inventory gain pushed stockpiles to $475.5 billion in January, up 24 per cent from a low hit in September 2009.

Business rebuilding of inventories has been a major driver in economic growth so far in the recovery. But economists believe inventory rebuilding will slow in the January-March quarter, a development expected to temporarily dampen growth.

Because of that anticipated slowdown, these economists expect the economy will see slower growth of around 2 per cent in the first quarter. For the entire year, economists at JPMorgan are forecasting growth of 2.3 per cent, which would be a modest improvement from the 1.7 per cent growth turned in during 2011.

There have been various signs recently of stronger growth in recent months including a surge in factory output and even housing showing some signs of life.

The Federal Reserve reported Thursday that Americans' wealth rose 2.1 per cent in the October-December quarter to $58.5 trillion. That was the sharpest quarterly gain in a year.

Encouraging economic news has helped lift consumers' spirits. A gauge of consumer confidence surged in February to the highest point in a year, far above where it stood in October before the jobs and economic news improved. The hope is that a more confident consumer will keep spending and provide support for stronger economic growth. Consumer spending accounts for 70 per cent of economic activity.

Stockpiles at the wholesale level account for about 27 per cent of total business inventories. Stockpiles held by retailers make up about one-third of the total and manufacturing inventories represent about 41 per cent of the total.

For January, the gains in inventories included a 0.5 per cent rise in auto stockpiles and a 1.1 per cent increase in inventories of computer equipment.

The changes left the ratio of inventories to sales at 1.15 in January, the same as in December. That means it would take 1.15 months to exhaust inventories at the wholesale level at the January sales pace, still a very lean level for inventories.