Ahead of the Bell: US wholesale inventories

July 11, 2012 - 7:35 AM

WASHINGTON (AP) — U.S. companies likely kept adding to their wholesale stockpiles in May, but not quickly enough to spur the kind of growth that would make a dent in the unemployment rate.

Sales at the wholesale level rose 1.1 percent in April, sparking a 0.6 percent rise in inventories that month that likely continued into May. Economists expect sales at the wholesale level may have slipped 0.1 percent in May, however.

Greater restocking means companies ordered more goods, which increases factory production. But the broader economic benefits from faster restocking could be offset by weaker consumer purchases.

Stockpiles at the wholesale level stood at $483.5 billion in April. That's nearly 26 percent above the post-recession low of $384.9 billion in September 2009.

Businesses are expected to keep adding to their inventories throughout this year, but the gains aren't expected to be as dramatic as seen at the end of last year. Businesses cut back on restocking last summer out of fear that the economy might fall into another recession. Once it became clear that it wouldn't, many companies quickly rebuilt their inventories to keep up with consumer demand. In the October-December quarter, the U.S. economy grew at an annual rate of 3 percent. Nearly two-thirds of that economic growth came from the surge in inventory rebuilding.

Businesses kept replenishing in the January-March quarter but by a smaller amount. That was a key reason that overall economic growth slowed to just 1.9 percent in the first quarter. Economists at JPMorgan Chase believe the economy will turn in growth of just 2 percent in the April-June quarter and grow at that same modest pace for the rest of the year. That rate would be far below what is needed to make a significant reduction in the unemployment rate, which remained at 8.2 percent in June with just 80,000 jobs created.

Wholesale stockpiles account for about 27 percent of total business inventories. Stockpiles held by retailers make up about one-third of the total and manufacturing inventories represent about 40 percent.