Business Inventories Rose Less Than Sales

A gain in U.S. business inventories trailed the improvement in sales in December, showing companies may continue to restock shelves and warehouses in early 2012.

The 0.4 percent increase in stockpiles followed a 0.3 percent advance the prior month, Commerce Department data showed today in Washington. The median projection in a Bloomberg News survey called for a 0.5 percent rise. Sales climbed 0.7 percent, the most since July.

Inventory replenishment, which helped the economy grow last quarter at the fastest pace in more than a year, may extend into this year as a pickup in hiring boosts purchases. Another report today showed retail sales rose less than forecast in January, held back by an unexpected drop in demand at auto dealers.

“Inventories are in a pretty good spot right now, where they’re not too much but also not too little,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “With employment gains, we can expect an improvement in demand. Inventory building will remain a support to the economy and to manufacturing this year.”

The median forecast for business inventories was based on a Bloomberg survey of 48 economists. Estimates ranged from no change to an increase of 1.1 percent. The November figure was the same as previously reported.

Retail Sales

Demand at retailers climbed 0.4 percent in January, half the 0.8 rise projected by median forecast of economists surveyed by Bloomberg News, other data from the Commerce Department showed today. Excluding cars, purchases rose 0.7 percent, more than estimated and the biggest gain since March.

Retailers’ inventories, the only part of today’s report not previously released, increased 0.2 percent as sales were little changed.

At the current sales pace, businesses had enough goods on hand to last 1.26 months, down from 1.27 the prior month and the least since March.

The economy expanded at a 2.8 percent annual rate in the fourth quarter after a 1.8 percent pace in the prior three months, Commerce Department figures showed on Jan. 27. Growth excluding a jump in inventories was 0.8 percent. Stockpiles were rebuilt at a $56 billion annual pace, adding 1.9 percentage points to growth.

Stockpiles were rebuilt last quarter following a reduction in the July through September period amid mounting concern that Europe’s debt crisis would restrain demand while the U.S. labor market was struggling to pick up.

More Hiring

Sales may get a boost as hiring improves, creating the need for companies to further replenish their shelves. Payrolls in January posted the biggest increase in nine months, and the unemployment rate fell to 8.3 percent, the lowest since February 2009, according to Labor Department data.

Companies that have worked to bring stockpiles in line with sales include LeapFrog Enterprises Inc. (LF), the maker of electronic educational products for children. Demand through the holiday season “significantly outstripped supply” and LeapFrog has “lots of sales momentum,” according to Chief Executive Officer John Barbour.

“We also ended the year in a dramatically better place in terms of inventory,” Barbour said on an earnings conference call on Feb. 9. “Both our inventory and retail inventories were a lot lower at the end of 2011 than 2010.”

Factory inventories, which comprise about 38 percent of the total, rose 0.1 percent in December, while wholesale inventories, which account for up about 30 percent of all business stockpiles, increased by 1 percent, Commerce Department data showed earlier this month.

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

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

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