Bloomberg News

Business Inventories in U.S. Increased More Than Forecast

July 16, 2012

Inventories in the U.S. rose more than forecast in May as sales declined for a second month, indicating companies may limit factory orders.

The 0.3 percent increase in stockpiles followed a revised 0.3 percent gain in April that was smaller than initially estimated, Commerce Department data showed today in Washington. The median forecast in a Bloomberg News survey projected a 0.2 percent gain. Sales fell 0.1 percent in May for a second month.

Companies may reduce orders placed with manufacturers as they attempt to keep stockpiles in line with sales and gauge whether spending and the economy will keep slowing. Another report today showed retail sales fell in June for a third month.

“Business inventories are generally in pretty good shape, but businesses have been proactive and when seeing moderation in demand, keeping their inventories relatively tight as well,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. Smaller job gains have meant “slower income growth, and that translates directly to slower spending growth.”

Businesses had enough goods on hand to last 1.27 months at the current sales pace in May, up from 1.26 months in April and the highest in a year.

The median forecast for business inventories was based on a Bloomberg survey of 41 economists. Estimates ranged from a decline of 0.2 percent to a gain of 0.5 percent.

Another Commerce Department report today showed June retail sales unexpectedly dropped 0.5 percent after a 0.2 percent decrease a month earlier. The stretch of three straight declines was the longest since July through December 2008.

Stocks Decline

Stocks trimmed losses as a rally in crude oil prices boosted shares of energy producers. The Standard & Poor’s 500 Index fell 0.2 percent to 1,353.64 at the close in New York. The yield on the 10-year Treasury note slid to 1.47 percent from 1.49 percent late on July 13.

Retailer stockpiles, the only part of today’s inventory report not previously reported, climbed 1 percent in May, the most since January.

Inventories made a smaller contribution to economic growth in the first quarter. The economy expanded at a 1.9 percent annual rate from January through March, after a 3 percent pace in the prior three months, Commerce Department data show.

Stockpiles added 0.1 percentage point to growth after contributing 1.8 percentage points in the fourth quarter.

Wholesale inventories, which make up about 30 percent of all stockpiles, rose 0.3 percent in May. The gain followed a 0.5 percent increase in April that was smaller than previously estimated.

Factory Inventories

Factory inventories, which comprise about 38 percent of total stockpiles, decreased 0.2 percent in May for a second month. Fort Worth, Texas-based AZZ Inc. (AZZ:US) is among companies seeing fewer orders on concern about the expansion.

“While overall opportunities have increased over the prior year, we have seen in recent weeks a slowing in the release of orders consistent with the increasing concern over the state of the economic recovery,” David Dingus, president and chief executive officer of the electrical equipment manufacturer, said on a June 29 earnings call. “This has and may continue to impact our backlog.”

To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net

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


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