09/12/2014 10:06 EDT | Updated 11/12/2014 05:59 EST

US business stockpiles increase moderate 0.4 per cent in July as sales advance 0.8 per cent

WASHINGTON - Stockpiles held by U.S. businesses rose by a moderate amount in July while sales increased at the fastest pace in three months.

Stockpiles increased 0.4 per cent in July, the Commerce Department reported Friday. That was the same increase as in June.

Sales increased 0.8 per cent, the best showing since a similar rise in April. Sales had advanced 0.6 per cent in June.

The July increase in stockpiles was in line with economists' expectations. They say the solid gains in business sales will give businesses confidence to boost their restocking efforts to meet the rising demand. Inventory increases spur more orders to factories and stronger economic activity.

The latest increase in inventories pushed total business stockpiles to $1.75 trillion, up 5.9 per cent from a year ago.

The gain reflected a 1 per cent rise in inventories held by retailers, the biggest gain in this sector since last October. Auto dealers boosted their stockpiles by 2.3 per cent, responding to the strong sales gains they have seen this year.

Stockpiles held by wholesalers were up a much smaller 0.1 per cent and inventories at the manufacturing level also rose 0.1 per cent.

Inventory growth is viewed as a good barometer of business sentiment. When companies add goods to their stockpiles, it shows optimism about future demand. If they slow inventory rebuilding, it can suggest that businesses expect demand to slacken and are trying to avoid getting stuck with unwanted goods.

A separate report Friday showed that retail sales increased a solid 0.6 per cent in August with about half of that increase coming from strong gains in auto purchases.

In the April-June quarter, an acceleration in inventory building contributed one-third of the 4.2 per cent growth rate turned in during the spring quarter.

During the first three months of the year, a slowdown in stockpiling had subtracted 1.2 percentage points from growth. That was a major factor sending the economy into reverse during the first quarter when the overall economy contracted at an annual rate of 2.1 per cent.

For the rest of the year, most analysts expect that inventory building will support economic growth without the wide swings in activity seen between the first and second quarters.