Inventories in U.S. Climb at Slowest Pace of Year on Weaker Sales Outlook
Inventories in the U.S. rose 0.1 percent in May, the smallest gain this year, signaling companies are preparing for weaker sales in coming months.
The increase in the value of stockpiles was smaller than the median forecast of economists surveyed by Bloomberg News and followed a 0.4 percent advance the prior month, data from the Commerce Department showed today. Sales fell 0.9 percent, the biggest drop since March 2009.
Companies had enough goods on hand to supply 1.24 months’ worth of sales at May’s pace, up from a record-low 1.23 months in April. The need to replenish depleted stockpiles, which propelled the U.S. out of its worst recession since the 1930s, is likely to moderate as demand cools, contributing less to growth.
“Inventory restocking is showing signs of fatigue,” Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “The recovery has lost some steam over the past month, and the reluctance of small businesses to invest and hire will contribute to a weak second half of this year.”
Sales at retailers fell in June for a second month, indicating the pace of economic recovery moderated heading into the second half of 2010, other figures from the Commerce Department showed today. Purchases decreased a more-than- projected 0.5 percent following a 1.1 percent May drop. Excluding auto dealers, demand fell 0.1 percent, matching the median forecast of economists surveyed by Bloomberg News.
Stocks Fall
Stocks fell after the reports. The Standard & Poor’s 500 Index declined 0.4 percent to 1,090.86 at 10:11 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 3.07 percent from 3.12 percent late yesterday.
Economists forecast inventories would rise 0.2 percent, according to the median of 53 projections in a Bloomberg News survey.
Retailers’ inventories, the only part of today’s report not previously released, increased 0.3 percent in May after rising 0.2 percent the previous month. Sales, excluding food, decreased 1.2 percent.
Factory inventories fell 0.4 percent and wholesale stockpiles increased 0.5 percent.
First Quarter
Stockpile replenishment added 1.88 percentage points to gross domestic product in the first quarter, down from 3.79 percentage points in the last three months of 2009, according to Commerce Department estimates released June 25. While the contribution to GDP may diminish, efforts to meet demand and to restock shelves will still support economic growth.
Inventory restocking is among reasons manufacturing has remained resilient amid a slowdown in consumer spending, the biggest part of the economy. The Institute for Supply Management said this month that its factory index totaled 56.2 in June. Fifty is the dividing line between expansion and contraction.
The ISM manufacturing gauge for customer inventories climbed to 38 in June after matching the lowest level on record the previous month.
Sales and inventories “are very much in sync,” Samuel Allen, chief executive officer of Deere & Co., said in an interview June 23 in a reference to the manufacturer’s agricultural business. The Moline, Illinois-based company also has started adding stockpiles on the construction side in recent months, he said.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
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