U.S. Wholesale Inventories Rise More Than Forecast

Inventories at U.S. wholesalers rose more than forecast in December as distributors tried to keep up with improving sales.
The 1 percent increase in stockpiles compared with a 0.7 percent gain median forecast in the Bloomberg News survey and followed an unchanged reading in November, Commerce Department figures showed today in Washington. Sales grew 0.4 percent to $371.5 billion, the highest level since August 2008.
Strengthening demand indicates orders to factories will keep climbing, which will keep manufacturing at the forefront of the economic expansion in coming months. The need to replenish stockpiles will probably contribute to growth in coming months.
“Demand is coming back and companies are seeing the need to keep their shelves well stocked,” said Sal Guatieri, a senior economist at BMO Capital Markets Inc. in Toronto. “Manufacturers are cranking up production to keep up with growing strength in exports and growing domestic demand.”
The median projection for wholesale inventories was based on a survey of 35 economists whose estimates ranged from an increase of 1.8 percent to a decline of 0.4 percent. The November reading was revised from a previously reported 0.2 percent decline.
Another report today showed the number of Americans filing first-time claims for unemployment insurance fell last week to the lowest level since July 2008, showing further strength in the labor market after the jobless rate declined to a 21-month low.

Jobless Claims

Applications for jobless benefits decreased by 36,000, more than forecast, to 383,000 in the week ended Feb. 4, Labor Department figures showed. Economists forecast claims would fall to 410,000, according to the median estimate in a Bloomberg survey.
Stocks held earlier losses after the reports as profit forecasts at Cisco Systems Inc. and PepsiCo Inc. trailed analyst estimates and concern grew about accelerating global inflation. The Standard & Poor’s 500 Index fell 0.7 percent to 1,311.94 at 10:03 a.m. in New York.
The increase in stockpiles, which would normally lead to an upward revision to fourth-quarter growth, may reflect a surge in imports which would widen the trade gap and counter the positive contribution from inventories.
The Commerce Department will release trade balance figures tomorrow. The median forecast of economists surveyed by Bloomberg is for a $40.5 billion shortfall, up from the $38.3 billion recorded a month earlier.

Influence on Growth

Inventory rebuilding, a major driver of the early stages of the economic recovery, slowed in the fourth quarter as sales jumped, detracting 3.7 percentage points from gross domestic product, according to the Commerce Department data.
Wholesalers make up about 30 percent of all business stockpiles. Factory inventories, which comprise about 38 percent of the total, rose 1.1 percent in December, the Commerce Department said Feb. 3. Retail stockpiles, which make up the rest, will be included in the Feb. 15 business inventories report.
Wholesalers’ stockpiles of durable goods, or those meant to last several years, increased 0.8 percent in December, led by automobiles and electrical equipment, today’s report showed.
The value of unsold non-durable goods inventories increased 1.2 percent as purchases dropped 0.3 percent.

Inventory Breakdown

The gain in non-durable goods stockpiles may have been influenced by higher commodity prices. The average price of a barrel of crude oil traded on the New York Mercantile Exchange was $89.23 in December, compared with $84.31 in November. Corn, wheat and soybean futures this week surged to the highest level since 2008.
“Prices of many industrial and agricultural commodities have risen lately, largely as a result of the very strong demand from fast-growing emerging market economies,” Federal Reserve Chairman Ben S. Bernanke told a congressional committee yesterday.
At the current sales pace, wholesalers had enough goods on hand to last 1.16 months in December, close to the record low of 1.13 months reached in April.
Holiday sales rose 5.5 percent, the best performance since 2005, according to MasterCard Advisors’ SpendingPulse, which measures retail sales by all payment forms. Consumer spending rose at a 4.4 percent rate in the fourth quarter, the fastest since early 2006.

Sales Climb

Car sales began the new year on a strong note. General Motors Co. posted a 22 percent gain in January from a year earlier, while Toyota Motor Corp. saw a 17 percent increase, the companies announced last week.
“We’ve managed our business prudently, keeping inventories in line and lowering our incentive costs while remaining competitive,” Don Johnson, vice president for U.S. sales at GM, said on a Jan. 4 conference call.
Coach Inc., a leading leather goods producer and marketer, saw North American same-store sales rise 13 percent in the quarter ended Jan. 1 from a year earlier, Chief Executive Officer Lew Frankfort said on a conference call from New York on Jan. 25.
“Our current inventories support the strong underlying business trends, and will allow us to maximize sales this spring,” Michael Devine, Coach’s chief financial officer, said on the call. “We’ve been right sizing our inventories this year, bringing them up to more appropriate levels to support our growing businesses.”
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net