Inventories Rise More Than Forecast
Inventories at U.S. wholesalers rose 1.1% in June, greater than forecast, amid stagnant sales, a government report showed Monday.
The June increase in inventories, which brought the value of goods at distributors, warehouses and terminals to $309.5 billion, followed a gain of 1.4% the month before, the Commerce Department said. Sales were unchanged after rising 12 months, including a 0.3% increase in May.
Inventories, drained to record lows earlier this year, grew as consumer spending slowed during the April-June quarter to the weakest pace since the 2001 recession.
Wholesalers had enough supplies in June to last 1.15 months at the current pace of demand, compared with 1.13 months’ worth in May. It was the second straight increase and the highest inventory-sales ratio since February.
“Inventories are coming back, and that’s partly a function of the soft patch that we went through in June,” said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Conn. “Retail sales were weak in June, but it feels like things have come back in July.”
Economists expected wholesale inventories to rise 0.6%, according to the median of 30 forecasts, after a previously reported increase of 1.2% in May. Sales were forecast to rise 0.4% after an initially reported 0.5% increase for May.
Stockpiles remain close to historical lows relative to sales, which may prompt companies to continue to add to inventories this year, contributing to gross domestic product, economists said. The inventory-to-sales ratio dropped to a record low of 1.12 months’ worth in April.
The level of wholesale inventories in June, coupled with a revised number for May, may lead the department to raise the contribution of inventories to gross domestic product in the second quarter by 0.2 percentage point, Stanley said. The economy grew during the quarter at a 3% annual rate, the slowest in more than a year, the department said in an advance report July 30.
The extent of inventory rebuilding may depend on whether energy prices moderate and hiring improves enough to revive consumer spending, which fell in June, economists say. Retail sales may have increased 1.2% in July after falling 1.1% in June, economists said in advance of a report Thursday from the Commerce Department.
Wholesalers account for about one-fourth of all business inventories. Retailers and factories make up the rest. Numbers on retail inventories will be available Thursday, when the government releases its report on all business stockpiles.
Inventories at wholesalers of durable goods, which include cars, machinery and appliances, rose 1.4% in June after rising 1.9% the previous month. Sales rose 0.5% after no change the previous month. A 1% drop in sales of electrical equipment after a 3.9% increase a month earlier limited the gain in all wholesale sales.
The value of inventories of nondurable goods rose 0.6%, led by paper and petroleum, after rising 0.7% in May. Sales of nondurable goods fell 0.6%, led by decreases for drugs, farm products and petroleum, after rising 0.5%.
Factory inventories rose 0.7% in June, matching the previous month’s increase, a report last week from the department showed. Inventories at all businesses held at a record low 1.3 months’ supply for a second month in May, the latest month for which data are available.
At the same time that consumer spending fell in June, orders at factories for durable goods rose, reflecting greater demand for automobiles and business equipment. Unfilled orders for durable goods were at the highest level in June since August 2001.
Inventories added 0.28 percentage point to second-quarter gross domestic product, compared with 1.17 percentage points in the first quarter, according to the Commerce Department.
