Business Inventories in U.S. Rose in October as Sales Dropped

Inventories in the U.S. climbed at a slower pace in October as sales dropped, indicating companies are trying to keep a tight rein on stockpiles heading into possible fiscal policy changes.

The 0.4 percent increase in goods on hand followed a 0.7 percent gain in September, the Commerce Department reported today in Washington. Sales at factories, wholesalers and retailers fell 0.4 percent, the first decrease since June, after advancing 1.2 percent.

Companies are keeping inventories lean out of concern that the economic recovery could stall if the U.S. fails to avert a package of government spending cuts and tax increases set to take effect next year. Another report today showed retail purchases climbed in November as auto demand rebounded and holiday shoppers snapped up electronics and clothes.

“Sales are running below inventory growth,” Neil Dutta, U.S. economist at Renaissance Macro Research LLC in New York, said before the report. “Businesses haven’t been cautious enough.”

Other reports today showed claims for jobless benefits fell more than forecast last week and producer prices dropped last month as fuel costs retreated.

A 0.3 percent gain in retail purchases last month followed a 0.3 percent decrease in October, other Commerce Department figures showed. The biggest drop in service-station receipts in four years, reflecting lower fuel costs, restrained the gain in total purchases.

Fewer Claims

Applications for unemployment insurance payments dropped by 29,000 to 343,000 in the week ended Dec. 8, the fewest since reaching a four-year low in early October, Labor Department figures showed

The producer price index declined 0.8 percent last month, the most since May, after falling 0.2 percent in October, other Labor Department figures also showed. The core measure, which excludes volatile food and energy, increased 0.1 percent after falling 0.2 percent.

The median in a Bloomberg survey of 41 economists forecast a 0.4 increase in inventories. Estimates ranged from a 0.2 percent drop to a 0.6 percent rise.

At the current sales pace, businesses had enough goods on hand to last 1.29 months in October, up from 1.28 months in September.

Retailer inventories, the only part of today’s stockpile report not previously released, climbed 0.6 percent as sales fell 0.4 percent.

Auto Inventories

Auto dealerships are increasing discounts and incentives in an effort to clear lots for next year’s models. General Motors Co. (GM) last month was caught with more double its typical supply of trucks as competitors boosted buyer incentives to sell their 2012 model-year pickups.

Other companies are trying to balance the prospect of next year’s changes in fiscal policy, which could slow spending, with the possibility that the package of tax increases and spending cuts will be averted and boost demand.

It’s a fine line to walk, said Gus Halas, president of Central Garden & Pet Co. (CENT), a Walnut Creek, California company whose brands include Pennington Seed.

“This is an area which we must operate with extreme care,” Halas said on a Dec. 11 earnings call. “While we will continue to seek ways to free up capital and lower inventory over time, our commitment is to our customer needs.”

In a survey from the National Federation of Independent Business this week, fewer companies reported plans to increase goods on hand.

Wholesale inventories, which account for about 30 percent of all business stockpiles, rose 0.6 percent in October. Factory stockpiles climbed 0.1 percent.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

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

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