07/10/2013 10:42 EDT | Updated 09/09/2013 05:12 EDT

US wholesale stockpiles shrink in May for 2nd month but sales rise, a sign growth may pick up

WASHINGTON - U.S. wholesalers cut back on restocking in May even as sales rose, indicating economic growth could pick up later this year as they rebuild their stockpiles.

The Commerce Department said Wednesday that wholesale stockpiles shrank 0.5 per cent in May, the most in 20 months. That followed a 0.1 per cent decline in April, which was revised lower.

Sales at the wholesale level jumped 1.6 per cent in May and 0.7 per cent in April.

A reduction in stockpiles may prompt economists to cut their growth forecasts for the April-June quarter. But the steady gain in sales suggests companies may have to order more goods in the coming months to keep up with demand. That could boost factory production and drive more economic growth in the second half of the year.

Auto sales jumped 3 per cent in May, yet stockpiles were unchanged. And sales of durable goods, items meant to last at least three years, rose 0.3 per cent, while inventories of those goods fell by the same amount.

Sales of nondurable goods rose 2.8 per cent, the most in more than two years. The gain was driven by large increases in sales of clothing, groceries and pharmaceuticals. Stockpiles of those goods declined 0.8 per cent.

Stockpiles of farm goods fell sharply for the second straight month, dropping 6 per cent. That likely reflected the impact of a severe drought last year, which has resulted in lower stockpiles this spring.

Overall wholesale stockpiles totalled $500.9 billion in May, 3.3 per cent higher than a year ago.

Much of the recent data suggest the second half of the year could be stronger, helped by steady job growth, a resilient consumer and a sustained recovery in housing.

Employers have added 202,000 jobs a month through the first six month of the year. That's up from 180,000 in the previous six months. More Americans are earning paychecks, which boosts overall income and supports more spending.

Job growth is being fueled in part by consumer spending and the housing recovery. Consumer confidence is at a 5 1/2 year high and is helping drive up sales of homes and cars. From January through June, car sales reached their highest total for the first half of the year since 2007. And sales of previously occupied homes topped 5 million in May for the first time in 3 1/2 years.

Still, unemployment remains high at 7.6 per cent. And the economy grew at a subpar 1.8 per cent annual rate in the January-March quarter. Many economists forecast that growth slowed further in the April-June quarter. One reason for the anticipated slowdown is weaker growth overseas has cut demand for U.S. exports.

Most economists forecast growth will rebound by the end of the year. According to the latest Associated Press Economy Survey, completed last month, economists expect growth will pick up to a 2.5 per cent annual pace in the second half of the year.