BUSINESS

US wholesale stockpiles fell 0.2 per cent in June but sales posted 0.4 per cent increase

08/09/2013 10:06 EDT | Updated 10/09/2013 05:12 EDT
WASHINGTON - U.S. wholesalers cut their stockpiles in June for a third straight month even as their sales rose again. The combination suggests businesses have underestimated demand, a trend that could lead to stronger economic growth in coming months.

The Commerce Department said Friday that wholesale stockpiles fell 0.2 per cent in June from May. That follows a 0.6 per cent drop in May — the biggest in 20 months — a modest 0.1 per cent decline in April.

Wholesalers haven't shrunk their stockpiles for three months or longer since September 2009, which was three months after the Great Recession ended. The decline shows that many remain cautious and are keeping inventories lean, despite three straight months of solid sales growth.

In June, sales at the wholesale level rose 0.4 per cent. That followed a 1.5 per cent increase in May and a 0.8 per cent gain in April.

Stronger sales could lead to more restocking in the July-September quarter and drive more economic growth. Faster growth in stockpiles means companies are ordering more goods from U.S. factories.

The government reported last month that the economy grew at a lacklustre 1.7 per cent annual rate from April through June.

Economists expect the growth rate to be revised much higher after a report this week showed U.S. companies exported a record number of goods in June.

Earlier this week, some analysts predicted that second-quarter economic growth could be as strong 2.5 per cent at an annual rate. But the weaker inventory growth may now reduce those more lofty estimates, albeit only slightly.

Jim O'Sullivan, chief U.S. economist at High Frequency Economics, said he now expects overall economic growth will be revised up to a rate of around 2.3 per cent.

Joel Naroff, chief economist at Naroff Economic Advisors, said that some of the reduction in wholesale stockpiles might have been involuntary, as businesses underestimated sales demand and had to draw down stockpiles more than they had expected.

He said that with auto sales remaining strong, inventory gains should rise in the coming months and help support economic growth in the second half of the year.

In June, stockpiles at the wholesale level were $499.7 billion. That's up only 2.9 per cent from a year ago but 29.3 per cent higher than the recession low in 2009.

Auto stockpiles fell 1.5 per cent in June from May, while inventories of metals such as steel declined 0.4 per cent.

The sales gain was led by a 1.5 per cent increase in furniture and a 0.5 per cent rise in auto sales