Ahead of the Bell: US business inventories

WASHINGTON

U.S. companies likely rebuilt their stockpiles in February at a healthy pace, a sign that many anticipated higher sales.

Economists forecast business inventories rose 0.6 percent in February, according to a survey by FactSet. That's just below January's 0.7 percent increase.

The Commerce Department will release the report at 10 a.m. Eastern time Monday.

Restocking hasn't slowed at the start of the year as much as economists had expected, leading many to raise their forecasts for January-March economic growth.

Larger stockpiles require businesses to order more goods. That leads to more factory production, which boosts growth.

Businesses are building up their stockpiles after cutting them over the summer amid recession fears. A big jump in restocking was a key reason the economy grew at an annual rate of 3 percent in the October-December quarter.

Many economists had predicted that restocking would slow at the start of the year and drag on growth. But so far, that hasn't happened.

Wholesale inventories, which account for about a third of all stockpiles, jumped 1.2 percent in February, the government reported last week.

The faster inventory growth, along with a narrower trade deficit and strong consumer spending in February, has lifted the outlook for first-quarter growth.

Economists are now predicting the economy grew at an annual rate of 2.5 percent to 3 percent in the first three months of the year. That's up from earlier projections of roughly 2 percent.

Still, consumers must continue spending to keep stockpiles growing. So far, sales are rising quickly enough to keep businesses reordering goods.

Steady hiring is crucial to encourage Americans to spend more. Job growth was strong from December through February. But employers added just 120,000 jobs in March -- half the pace from the previous three months. That's raised concerns that job growth could be slowing.

Many economists think March's slowdown was temporary. In the past three months, job gains have averaged 212,000 per month. The unemployment rate has dropped from 9.1 percent in August to 8.2 percent last month.

If the economy continues to average roughly 200,000 new jobs per month, consumers are likely to feel more comfortable about spending.

Stockpiles held by manufacturers account for nearly 40 percent of total business inventories, while wholesalers and retailers each hold about one third.