Business inventories ticked up 0.1 per cent in December from November, the Commerce Department said Wednesday. That was below the 0.2 per cent pace the previous month and the smallest increase since last June.
Total sales for wholesalers, retailers and manufacturers increased only 0.3 per cent, down from a 0.9 per cent clip in November.
Slower rebuilding of inventories means factories produced less, lowering overall economic output.
One silver lining: if sales keep growing, companies may have to restock more quickly in the January-March quarter, boosting growth. A separate report Wednesday showed retail spending ticked up in January.
The slower inventory rebuild in the final three months of last year than in the previous three months was a big reason the government estimated the economy actually shrank at an annual rate of 0.1 per cent in the October-December quarter. That was the first contraction in 3 1/2 years.
A report last week showed that businesses at the wholesale level cut inventories by 0.1 per cent in December, after boosting them in November.
The government will issue two more assessments of the economy's performance in the October-December quarter in the coming months. Those revisions are likely to show a small increase in gross domestic product, the broadest measure of U.S. economic output, rather than a contraction. That's largely because exports jumped in December and imports fell, resulting in a narrower trade gap.
Higher sales of U.S. goods to overseas customers, and less spending on imports, boosts growth. The government didn't have the final trade data when it first estimated fourth quarter GDP.
In addition, the small increase in business inventories in December was slightly better than the government estimated when it reported that the economy shrank. Overall, the government's future estimates for the fourth quarter will likely show a small increase in growth of about 0.5 per cent, economists said.
The slowdown in restocking means that companies may have to order more goods in the January-March quarter, particularly if consumer spending keeps rising. It grew at a faster pace in the fourth quarter than the third.
Growth could accelerate to between an annual rate of 1.5 per cent and 2 per cent in the first quarter, analysts forecast.