Inventories in US rise at fastest pace in two years

Inventories at US businesses rose in July at the fastest pace in two years as companies stocked up ahead of a back-to-school sales season that proved to be better than projected.

The 1 per cent increase in the value of stockpiles was the biggest since July 2008 and followed a revised 0.5 per cent rise in June, the Commerce Department said today in Washington. Sales climbed 0.7 per cent after decreasing 0.5 per cent.

Companies had enough goods on hand to supply 1.26 month’s worth of sales at July’s pace, the same as in the prior month. The need to restock depleted inventories, a major driver of the economic recovery, will probably diminish, keeping stockpiles more in line with demand.

“Businesses remain cautious, but they are not retrenching,” Aaron Smith, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “The inventory contribution may be fading more slowly, a positive for near-term growth.”

Economists forecast inventories would rise 0.7 per cent, according to the median of 50 projections in a Bloomberg News survey. Estimated ranged from gains of 0.1 per cent to 1.1 per cent.

Sales rise
Sales at US retailers rose 0.4 in August, a second consecutive gain, easing concern the economy will stumble in the second half of the year, another report from the Commerce Department showed today. Sales excluding automobiles advanced 0.6 per cent, twice as much as forecast.

Demand at chains like Kohl’s Corp and Ross Stores Inc climbed as more states had tax-free holidays and some merchants offered bigger discounts to lure back-to-school shoppers.

Stocks retreated as German confidence slumped and on concern China will cool its real-estate market. The Standard & Poor’s 500 Index fell 0.2 per cent to 1,119.2 at 10.07 am in New York. Treasury securities rose, pushing the yield on the 10-year note down to 2.69 per cent from 2.75 per cent late yesterday.

Retailers’ inventories, the only part of today’s report not previously released, increased 0.7 per cent in July after rising 1.1 per cent the previous month. Auto dealers and department stores led the advance.

Factory inventories rose 1 per cent and wholesale stockpiles increased 1.3 per cent. Sales at manufacturers rose 1.1 per cent and those at wholesalers grew 0.6 per cent.

Limiting stockpiles
Nordstrom Inc on August 12 reiterated its forecast that sales at stores open at least a year will grow at least 6 per cent this year. Nordstrom President Blake Nordstrom said on a conference call that the retailer was working to reduce “pockets” of excess inventories in women’s accessories that piled up during the quarter that finished at the end of July.

The world’s largest economy grew at a 1.6 per cent annual pace in the second quarter, down from a 3.7 per cent gain in the first three months of the year, according to figures from the Commerce Department last month. Gains in inventories contributed 0.63 percentage point to growth after a 2.64 point contribution in the first three months of the year.

A surge in manufacturing to replenish depleted stockpiles helped the economy recover from the recession.