Wholesale Inventories Exceed Estimates as Suppliers Stock Up for Holidays

Inventories at U.S. wholesalers climbed twice as much as forecast in September as suppliers stocked up ahead of the holiday sales season.

The 1.5 percent increase in the value of inventories followed a revised 1.2 percent rise in August that was larger than initially estimated, Commerce Department figures showed today in Washington. The median of economists surveyed by Bloomberg News projected a 0.7 percent gain. Sales climbed 0.4 percent to $353.9 billion, the highest since September 2008.

The advance in stockpiles, which would normally lead to an upward revision to third-quarter growth, may reflect a surge in imports which would widen the trade gap and blunt the effect on the world’s largest economy. Higher inventories last quarter also means merchants may place fewer orders in the last three months of 2010.

“We’ll get stronger imports in September than people are looking for,” said Brian Jones, an economist at Societe Generale SA in New York, who forecast a 1.3 percent gain in stocks. “You’ve got a very big build going into the final three months of the year. The gap between demand and inventory build has to be resolved one way or the other.”

Another report today showed job openings dropped in September, a sign a sustained labor market rebound will take time to develop. Openings decreased by 163,000 to 2.93 million, the Labor Department said. The number of people hired rose from the prior month and separations fell.

Shares Rise

Stocks climbed on a better-than-predicted earnings forecast at Priceline.com Inc. and a surge in Yahoo! Inc. amid takeover speculation. The Standard & Poor’s 500 Index rose 0.2 percent to 1,225.93 at 10:22 a.m. in New York.

The median forecast for wholesale inventories was based on a survey of 34 economists. Estimates ranged from increases of 0.3 percent to 1.5 percent. The August gain was revised up from a previously reported 0.8 percent increase.

Wholesalers make up about 30 percent of all business stockpiles. Factory inventories, which comprise about 38 percent of the total, rose 0.7 percent in September, the Commerce Department said Nov. 3. Retail stockpiles, which make up the rest, will be included in the Nov. 15 business inventories report.

Today’s report showed wholesalers’ stockpiles of durable goods, or those meant to last several years, increased 0.7 percent in September, led by automobiles, machinery and electrical equipment.

Non-Durable Goods

The value of unsold non-durable goods rose 2.8 percent and sales increased 0.6 percent.

At the current sales pace, wholesalers had enough goods on hand to last 1.18 months in September, the most since November 2009. The inventory-to-sales ratio reached a record low of 1.13 months in April.

An increase in U.S. payrolls last month indicates wholesalers are correct in boosting stockpiles, said Societe Generale’s Jones. Employers added 151,000 workers to payrolls last month, the first gain in five months.

Last week’s employment report suggests “maybe we’ll get better demand-side numbers,” helping close the gap between sales an inventories, Jones said.

The gain in wholesale inventories signals that imports in September probably also increased. The Commerce Department tomorrow will release trade balance figures tomorrow.

Rebuilding Stocks

Inventory rebuilding, a major driver of the early stages of the economic recovery, is continuing at a stronger rate than most economists had expected. Restocking contributed 1.44 percentage points to the 2 percent expansion in the third quarter.

Some retailers are adding to stockpiles in anticipation spending will be sustained into the holidays.

Coach Inc., the largest U.S. luxury goods maker, boosted inventories by 36 percent in the latest quarter from a year earlier as global sales rose and the company expanded its network in North America, China and Japan.

“This planned inventory build supports strong underlying business trends to maximize sales this holiday,” Michael Devine, chief financial officer of Coach Inc., said on an Oct. 26 conference call with analysts.

Intel Corp., the world’s largest chipmaker, is among companies keeping a rein on restocking.

“We’re trying to be really nimble to respond to the environment and to get ahead of the ramp that we’re expecting,” Stacey Smith, chief financial officer at Intel, said on a conference call Oct. 12. “That’s a good part of the reason why we grew inventory less than we could have given the changing demand environment.”

Intel posted record revenue and operating income in the third quarter as strengthening demand in emerging markets offset weak sales in the consumer markets of Europe and North American.

To contact the reporter on this story: Bob Willis in Washington at Bobwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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