Inventories in U.S. Rise at Fastest Pace in Two Years

Inventories at U.S. businesses rose in July at the fastest pace in two years as companies stocked up ahead of a back-to-school sales season that proved to be better than projected.

The 1 percent increase in the value of stockpiles was the biggest since July 2008 and followed a revised 0.5 percent rise in June, the Commerce Department said today in Washington. Sales climbed 0.7 percent after decreasing 0.5 percent.

Companies had enough goods on hand to supply 1.26 month’s worth of sales at July’s pace, the same as in the prior month. The need to restock depleted inventories, a major driver of the economic recovery, will probably diminish, keeping stockpiles more in line with demand.

“Businesses remain cautious, but they are not retrenching,” Aaron Smith, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “The inventory contribution may be fading more slowly, a positive for near-term growth.”

Economists forecast inventories would rise 0.7 percent, according to the median of 50 projections in a Bloomberg News survey. Estimated ranged from gains of 0.1 percent to 1.1 percent.

Sales Rise

Sales at U.S. retailers rose 0.4 in August, a second consecutive gain, easing concern the economy will stumble in the second half of the year, another report from the Commerce Department showed today. Sales excluding automobiles advanced 0.6 percent, twice as much as forecast.

Demand at chains like Kohl’s Corp. and Ross Stores Inc. climbed as more states had tax-free holidays and some merchants offered bigger discounts to lure back-to-school shoppers.

Stocks retreated as German confidence slumped and on concern China will cool its real-estate market. The Standard & Poor’s 500 Index fell 0.2 percent to 1,119.2 at 10:07 a.m. in New York. Treasury securities rose, pushing the yield on the 10-year note down to 2.69 percent from 2.75 percent late yesterday.

Retailers’ inventories, the only part of today’s report not previously released, increased 0.7 percent in July after rising 1.1 percent the previous month. Auto dealers and department stores led the advance.

Factory inventories rose 1 percent and wholesale stockpiles increased 1.3 percent. Sales at manufacturers rose 1.1 percent and those at wholesalers grew 0.6 percent.

Limiting Stockpiles

Nordstrom Inc. on Aug. 12 reiterated its forecast that sales at stores open at least a year will grow at least 6 percent this year. Nordstrom President Blake Nordstrom said on a conference call that the retailer was working to reduce “pockets” of excess inventories in women’s accessories that piled up during the quarter that finished at the end of July.

The world’s largest economy grew at a 1.6 percent annual pace in the second quarter, down from a 3.7 percent gain in the first three months of the year, according to figures from the Commerce Department last month. Gains in inventories contributed 0.63 percentage point to growth after a 2.64 point contribution in the first three months of the year.

A surge in manufacturing to replenish depleted stockpiles helped the economy recover from the recession, and a diminished need to boost goods on hand is now one reason growth is cooling. The Institute for Supply Management said this month that its orders index expanded in August at the slowest pace in 14 months.

Carmakers are among companies keeping a tight rein on inventories as demand has slowed. Toyota Motor Corp., General Motors Co. and Ford Motor Co., the three largest sellers of autos in the U.S., reported bigger sales declines than analysts projected as the industry posted its worst August in 28 years.

“We’re in a good inventory position as we move into September,” Brian Sweeney, GM’s vice president for U.S. sales, said on a teleconference Sept. 1.

To contact the reporters on this story: Robert Willis in Washington at bwillis@bloomberg.net

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