BUSINESS

US companies are adding more slowly to stockpiles, keeping lid on economic growth

05/15/2012 12:17 EDT | Updated 07/15/2012 05:12 EDT
WASHINGTON - U.S. companies restocked more slowly in March, a trend that has helped slow economic growth this year.

Companies' inventories rose 0.3 per cent in March, the Commerce Department said Tuesday. It was the smallest increase since November.

Business sales rose 0.6 per cent in March.

The pace of restocking has diminished this year from the end of last year, contributing less to economic growth in the January-March quarter.

When businesses increase their pace of restocking, they order more goods. That typically supports higher factory production and faster economic growth. On the other hand, when companies cut back on stockpiling, growth tends to decline.

Stockpiles have remained lean relative to company sales. The inventory-to-sales ratio dipped to 1.27 in March. Given the March sales pace, it would take roughly five weeks to exhaust company stockpiles.

Inventories are expected to keep growing this year. But the gains aren't expected to return to their levels at the end of last year. That's because businesses had cut back on restocking last summer out of fear that the economy might fall into another recession. Once it became clear that it wouldn't, many companies rebuilt their stockpiles to keep up with consumer demand.

Sales rose strongly in February and March. In part, that reflected a mild winter that might have accelerated some sales at the expense of later months. A separate report Tuesday showed that retail sales barely rose in April.

Economists say the pace of inventory rebuilding is consistent with moderate growth. But consumers must keep spending for businesses to continue restocking at a healthy pace.

In the first three months of this year, the economy grew at an annual rate of 2.2 per cent. That's down from the 3 per cent growth rate in the October-December quarter but better than the 1.7 per cent growth for all of 2011. And it was driven by the fastest growth in consumer spending since late 2010.

Consumers spent more partly in response to hiring. The economy has added more than 1 million jobs over the past five months. More jobs mean more consumers with money to spend.