Inventories Up 0.8%; Business Sales Dip 0.2%

Business inventories jumped 0.8% in November, the second straight big monthly increase, while total sales were falling, the Commerce Department said Friday.

The department said inventories on shelves and back lots rose $5.57 billion in November to a seasonally adjusted $695.5 billion, following a 1.1% advance in October.

Business sales edged down 0.2% to a seasonally adjusted $461.4 billion in November after being basically unchanged in October.

The second consecutive month of sluggish sales and surging inventories raised concerns among economists that unwanted inventories will have to be worked down in coming months.

Such a scenario can trigger a recession if the factory layoffs and shutdowns that occur are widespread enough. But even with two months of big inventory increases, many analysts said they believed that the country would be able to avoid a recession, in part because of expected continued strength in U.S. sales abroad.

In a separate report Friday, the Commerce Department said the nation’s trade deficit narrowed to $13.2 billion in November as exports surged to a record level of $23.8 billion.

Analysts noted that so far the buildup in inventories has not depressed output. In a third report Friday, the government said industrial production rose 0.2% in December, despite the big November inventory increase.

John Hagens, senior economist at WEFA Group, formerly Wharton Econometrics, said the overall economy, as measured by the gross national product, was probably growing at a robust rate of around 3% in the final three months of 1987.

But he said much of that growth was going into the buildup of inventories at a time when consumer spending was slowing.

“Any time we see an increase in inventories when sales are falling, it is a signal of involuntary building of inventories, which means there could be cutbacks in the months ahead,” Hagens said.

The 0.8% increase in November inventories was led by a 0.9% jump in inventories at the retail level. Inventories at the wholesale and manufacturing levels both rose 0.8%.

David Wyss, an economist with Data Resources Inc. in Lexington, Mass., said retail inventories are clearly too high and will translate into weaker production in the early months of 1988.

The 0.2% drop in business sales reflected a 1.6% plunge in sales by wholesalers in November. Sales by manufacturers rose 0.5%, while sales at the retail level were up 0.1%.

An advance report Thursday showed that retail sales rebounded somewhat in December, rising 0.7% on the strength of stronger demand for autos.