Inventories Up 1% in August Despite Fastest Sales in 7 1/2 Years

Businesses built up their stockpiles at a rapid pace in August despite the fastest sales in 7 1/2 years, the Commerce Department said Monday.

Inventories rose 1%, the fifth consecutive advance and the biggest since 1.2% in May, the department said. Sales rose 3% as auto dealers restocked after shutting down in July to retool for 1995 models.

Analysts said the figures are fresh evidence of economic strength, increasing the chances that the Federal Reserve Board will raise interest rates again next month.

Analysts said the inventory increase will probably inflate the economic expansion in the third quarter to about 3%, making another boost in short-term interest rates by the Fed more likely when central bank policy-makers meet.

“I’m a little bit surprised the accumulation is so high,” said economist Sung Won Sohn of Norwest Corp., a Minneapolis bank. “But much of it was due to automobiles. Earlier this summer, Detroit was short of cars because of retooling and the demand for hot-selling cars.”

Sung said there may have been some involuntary buildup by retailers, particularly at clothing and department stores, where apparel sales have been lagging.

Still, analysts said the inventory increase will probably inflate the economic expansion in the third quarter to about 3%, making another boost in short-term interest rates by the Fed more likely when central bank policy-makers meet next month. The Fed has raised rates five times this year.

The government’s first estimate of gross domestic product for the third quarter is due Oct. 28.

The inventory accumulation “is stronger than expected,” said economist Marilyn Schaja of Donaldson, Lufkin & Jenrette Securities Corp. in New York. “The economy continues to push along.”

Many analysts had predicted inventories would increase 0.4% in August, less than half the actual bulge.

The report had little impact on financial markets.