Sept. 7 (Bloomberg) -- Inventories at U.S. wholesalers rose less than forecast in July and sales cooled, signaling production may slow in coming months as the economy loses jobs.

Stockpiles increased 0.2 percent, the smallest rise this year, after a 0.3 percent gain in June, the Commerce Department said today in Washington. Sales climbed 0.1 percent, the least since January.

Businesses may be reluctant to add to stocks after trimming payrolls in August for the first time in four years as they work through unsold goods at warehouses. A deepening housing slump, which sparked a credit crisis last month, has raised the risk that the expansion will stall.

``Middlemen continue to be extremely cautious, especially given the recent increased uncertainty about the outlook for the economy,'' said Steven Wood, president of Insight Economics LLC in Danville, California. ``Wholesale inventories will not add to third quarter GDP growth.''

The Labor Department today reported the economy unexpectedly lost 4,000 jobs in August, increasing speculation that the Federal Reserve will have to reduce interest rates to counter an economic slowdown. The unemployment rate held at 4.6 percent as almost 600,000 people left the workforce.

Economists forecast wholesale inventories would rise 0.4 percent after a 0.5 percent gain originally reported for June, according to the median of 37 projections in a Bloomberg News survey. Estimates ranged from 0.2 percent to 0.7 percent.

Companies had goods on hand to last 1.11 months at the current pace of sales, the same as in June.

Inventory Value

The value of wholesale inventories rose to $398.8 billion in July from $397.9 billion the prior month, today's report showed.

Wholesalers make up about 25 percent of all business stockpiles. Factory inventories rose 0.2 percent in July for a second month, a Commerce report showed Aug. 31. At that pace, the amount of goods on hand slipped to the lowest since August 2006. Retail inventories will be included in the business stockpiles report to be released Sept. 14.

A buildup of unsold goods led businesses to slash orders and draw down stocks earlier this year and concern that economic growth may weaken will probably keep stockpiles lean.

The economy expanded at a 4 percent annual pace in the second quarter, the fastest in more than a year, revised figures from the Commerce Department showed Aug. 30. Stockpiles added 0.21 percentage point to growth, falling short of economists' expectations as firms continued to assess the outlook for demand.

Today's report showed wholesalers' stockpiles of durable goods, or those meant to last several years, fell 0.5 in July after a 0.4 percent drop in June. The decline was led by automakers and metals producers.

Autos Down

Carmakers continue to struggle. General Motors Corp., the largest U.S. automaker, this week said it plans to trim fourth- quarter North American production by 107,000 vehicles, or 9.7 percent from a year earlier, to 1 million. GM also increased average incentives on its pickup trucks by $440 a vehicle in August from July.

Non-durable goods inventories increased 1.5 percent, led by gains in farm products and paper. Sales of such goods rose 0.1 percent, following a 0.3 percent gain a month earlier.

The value of wholesale petroleum inventories fell 0.1 percent, after increasing 2.1 percent in June. Petroleum sales climbed 1.5 percent after a 0.3 percent gain.

Higher oil prices, which fueled gains in the wholesale inventories in recent months, continue to be a concern. Crude oil futures traded on the New York Mercantile Exchange jumped to $78.21 a barrel at the end of July, from $70.68 in June. Prices have gained this week.

Recent reports point to weaker prospects for production. The Institute for Supply Management's figures this week showed manufacturing grew at the slowest pace in five months in August. The group's inventory gauge dropped to 45.4 from 48.5 in July. A figure below 50 means manufacturers are trimming stockpiles.

To contact the reporters on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

Last Updated: September 7, 2007 10:52 EDT