Stockpiles rose a slight 0.1 per cent in December following a modest 0.2 per cent gain in November, the Commerce Department reported Thursday. Sales dropped 0.9 per cent in December after a 0.4 per cent fall in November. It was the fifth consecutive month that sales have decreased, and it was the biggest drop since a 1.3 per cent decline in January 2014.
The deceleration in inventory growth in recent months could be a reaction to the weakness in sales, with businesses cutting back on restocking amid falling demand. Economists, however, remain bullish that sales will rebound in 2015 and businesses will respond by boosting their inventories. Increased restocking should power higher factory production and support overall economic growth.
Laura Rosner, an economist at BNP Paribas, said the weak showing for business inventories matched her view that the economy expanded at a 2 per cent annual rate in the final three months of the year. That would represent a decline from the government's initial estimate of 2.6 per cent growth in the fourth quarter.
The optimism about a rebound in sales reflects strong gains in employment, which should power consumer spending in coming months.
Employers added 257,000 jobs in January, capping the most robust three-month pace of hiring in 17 years. The strength in the labour market is expected to show up in rising consumer spending.
For December, inventories held by retailers increased 0.5 per cent while stockpiles at the wholesale level were up 0.1 per cent. Manufacturing inventories fell 0.3 per cent.
A separate report Thursday said that retail sales fell 0.8 per cent in January as gas prices plunged and auto sales slowed. But outside those two categories, sales edged up 0.2 per cent after a flat reading in December.