Stockpiles at U.S. Companies Show Smallest Gain in Over a Year

Inventories at U.S. companies rose less than forecast in June, indicating companies kept a tight rein on supply as consumer spending cooled.

The 0.3 percent increase in stockpiles was the smallest since May 2010 and followed a revised 0.9 percent gain in May that was less than initially estimated, the Commerce Department said today in Washington. The median projection in a Bloomberg News survey was for a 0.5 percent rise. Sales climbed 0.4 percent.

Slower stockpile accumulation indicates companies are being prudent in the amount of goods they keep on shelves, indicating the economy isn’t suffering from excess supply. Another report today showed retail sales picked up in July, a sign companies will need to place more orders to replenish inventories.

“We don’t have a big buildup in inventories like we did prior to the last recession and that’s good news,” Kurt Karl, chief U.S. economist at Swiss RE in New York, said before the report. “That implies a shallow downturn if we have one.”

Stockpiles in May were revised from a previously reported 1 percent gain.

Retail sales climbed in July by the most in four months, showing consumers are holding up even as employment slows, another report from the Commerce Department showed today. The 0.5 percent increase in purchases matched the median forecast of economists surveyed by Bloomberg News and followed a 0.3 percent gain in June that was larger than previously estimated.

Retailers’ inventories, the only part of today’s stockpile report not previously released, rose 0.2 in June as sales increased 0.3 percent.

Inventory Breakdown

Factory inventories, which comprise about 38 percent of total stockpiles, grew 0.2 percent in June, the Commerce Department said Aug. 3. Another 30 percent of inventories, held by wholesalers, grew 0.6 percent during the month, figures showed Aug. 10.

At the current sales pace, businesses had enough goods on hand to last 1.28 months in June, the same as in May, according to today’s figures.

After helping drive the early stages of the economic recovery, inventory rebuilding slowed in the second quarter of 2011. Stockpiles contributed 0.2 percentage point to gross domestic product from April to June, according to Commerce Department data. That contribution may be even smaller than first estimated after taking into account today’s data.

Nonetheless, tight inventory control last quarter signals companies will need to keep restocking, giving third-quarter growth a boost.

Slower Growth

The U.S. economy expanded at a 1.3 percent annual rate during that quarter, raising concerns of a prolonged slowdown. Fed Chairman Ben S. Bernanke and his fellow policy makers said in June that they expected growth to pick up as supply chain disruptions related to Japan’s earthquake eased and commodity costs moderated. This week, they offered a dimmer view.

“Economic growth so far this year has been considerably slower than the committee had expected,” policy makers said after announcing they would hold the benchmark interest rate near zero until at least mid-2013. The Fed also said it expects a “somewhat slower pace of recovery over coming quarters,” adding that “downside risks to the economic outlook have increased.”

Concerns about “consumer demand have led to a more cautious inventory replenishment strategy with inventories remaining at historically low levels relative to sales even as the retailers posted so much stronger sales year over year,” John Koraleski, executive vice president of marketing and sales for Union Pacific Corp. (UNP), said on a July 21 conference call with analysts.

Spending among consumers rose at 0.1 percent pace in the second quarter, the weakest since the April-June period of 2009.

To contact the reporters on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net; Bob Willis in Washington at bwillis@bloomberg.net

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

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