Inventory Pace Slows as Sales Rise Sharply

Sales of manufactured goods climbed a sharp 1.1% in November--the biggest gain in six months, the Commerce Department said Wednesday.

A separate report by the Federal Reserve Board disclosed that the operating rate at the nation’s factories, mines and utilities climbed slightly in December. This added to the potential problem of high inventory levels that could hold down growth this year, analysts said.

The Commerce Department’s Wednesday report said stocks of inventories on shelves and in back lots increased by the smallest amount in 17 months.

Sales in November increased $4.4 billion to a new total of $415 billion, with retailers reporting the biggest increase.

Sales at the retail level climbed 2.3%, followed by a 1.3% increase for manufacturers and a 0.5% gain for wholesalers.

Analysts said the across-the-board increases were consistent with the view that the economy picked up considerable strength in November following a four-month period of much slower growth.

“This is telling us that the economy is continuing to expand and we are not seeing any major imbalances which could cause problems,” said Steven Wood, an economist with Chase Econometrics.

Inventories held at all business stages totaled $564.2 billion in November, a 0.1% increase over the October level. While this represented the 17th consecutive monthly gain in inventories, it was the smallest of all the increases. The last decline in inventory levels was a 0.1% dip in June, 1983.

Inventories grew by 0.6% in October and 0.7% in September.

Roger Brinner, an economist with Data Resources Inc., said that even though the rate of increase slowed considerably in November, inventory levels--especially at the retail level--were too large and would need to be worked down in coming months.

He said a report Tuesday that retail sales dipped 0.1% in December suggested that retailers were not able to unload unwanted inventories during Christmas and thus would be working down stockpiles in coming months rather than placing new orders.

Brinner said the inventory overhang could cut 2 percentage points off overall growth in the first three months of this year. He predicted that the economy, as measured by the gross national product, would grow at a rate of only 1.5% during this period. However, other analysts were not as pessimistic.

Allen Sinai, chief economist for Shearson Lehman/American Express, said the tiny inventory increase in November “suggests that business is correcting a mild imbalance in inventories.” He said this would mean continued increases in factory production in coming months.

Sinai said the various business barometers were pointing to “some renewed growth, but we are not headed back towards super-growth.”

The small increase in inventories came primarily from a 0.7% jump in inventories held by wholesalers. Inventories at the retail level rose 0.3%, while manufacturers’ inventories dropped 0.3%.

The strong increase in sales coupled with the small gain in inventories translated into a drop in the inventory-to-sales ratio. The time it would take to deplete existing stocks based on the sales level was 1.36 months in November, down from 1.37 months in October.

The Federal Reserve Board reported that the industrial operating rate hit 81.9% in December. The 0.3-percentage-point increase followed a smaller 0.1% gain in November.

Before the two increases, industrial operating rates had fallen for three consecutive months, reflecting the overall weakness in the economy in the late summer and early fall.

The economy, as measured by the gross national product, grew by a robust 8.6% rate in the first half of 1984, but that pace slumped to 1.6% from July through September.