Business Inventories in U.S. Increase by Most Since May 2011

Inventories in the U.S. rose in January by the most since May 2011 as companies replenished warehouses and shelves amid signs demand will pick up.

The 1 percent increase in goods on hand exceeded the highest forecast in a Bloomberg survey and followed a 0.3 percent gain in December that was more than previously estimated, Commerce Department figures showed today in Washington. The median estimate was for a 0.5 percent advance.

Businesses are restocking after a cutback in the pace of inventory building in the fourth quarter that weighed on economic growth. Progress in the labor market is sustaining consumer spending as companies invest in new equipment, a sign factory orders may pick up.

“As evidence grew that consumer demand had momentum, businesses had to catch up again” after the slowdown in inventory growth at the end of 2013, Sam Coffin, an economist for UBS Securities LLC in Stamford, Connecticut, said before the report. “Household spending has been moving along at a decent clip.” UBS is the top forecaster of business inventories for the past two years, according to data compiled by Bloomberg.

The Bloomberg survey median was based on forecasts from 47 economists. Estimates ranged from gains of 0.2 percent to 0.8 percent after a previously reported 0.1 percent gain in December.

Another report from the Commerce Department today showed retail sales climbed in February by the most in five months, boosted by purchases of motor vehicles and more expensive gasoline. The 1.1 percent advance in retail purchases exceeded all projections in a Bloomberg survey and followed a revised 0.2 percent gain in January. The median forecast was for a 0.5 percent advance.

Inventory-Sales Ratio

At the January sales pace, businesses had enough goods on hand to last 1.29 months, up from 1.28 months in the prior month and the highest since August.

Business sales dropped 0.3 percent in January, reflecting declines at factories and wholesalers. Purchases at retailers advanced 0.3 percent in January after a 0.4 percent gain the prior month.

Retailer inventories, the only part of today’s report not previously released, increased 1.5 percent in January, the most since May 2006. Retail stockpiles excluding unsold motor vehicles rose 1.3 percent, the most since August 1995.

Wholesale Inventories

Wholesale inventories, which account for about 30 percent of all business stockpiles, jumped 1.2 percent in January, the biggest in more than a year, the Commerce Department reported last week. Factory inventories, which comprise about 38 percent of the total, increased 0.5 percent in January, the Commerce Department said March 6.

The rebuilding of stockpiles may help gross domestic product rebound after a fourth-quarter slowdown subtracted 1.55 percentage points from growth.

The world’s largest economy grew at a 0.1 percent annual rate from October through December as military spending dropped by the most since the Vietnam War era, Commerce Department figures showed Feb. 28. A final revised reading is scheduled for release March 28.

Texas Instruments Inc. of Dallas, the largest maker of analog chips, said its thousands of electronics industry customers have been keeping a lid on supplies.

“Our sense is that the customers are still running pretty lean on the inventory front,” Vice President Ron Slaymaker said on a March 7 conference call. “They’re not committing to a lot of extended backlog.”