Ahead of the Bell: Business Inventories

AP News
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Posted: Dec 11, 2009 6:44 AM

Businesses likely cut inventories for a 13th straight month in October, although analysts believe that a record stretch of declines may be coming to an end.

Economists surveyed by Thomson Reuters expect that businesses reduced inventories by 0.3 percent in October following a 0.4 percent drop in September. The Commerce Department will release the report at 10 a.m. EST Friday.

The government reported Wednesday that wholesale inventories unexpectedly rose by 0.3 percent in October, breaking a record string of 13 straight declines in inventory stocking at the wholesale level. Sales also performed better than expected, rising by 1.2 percent in October, much stronger than the 0.7 percent sales increase economists had expected.

Steadily rising sales should help encourage businesses to restock shelves, boost production and bolster a broad recovery. The worry, however, is that consumer spending could falter in coming months, jeopardizing the fragile economic recovery. Consumer spending accounts for 70 percent of total economic activity.

Economists are hoping that inventory rebuilding will provide a key support to economic growth in the current quarter. The overall economy, as measured by the gross domestic product, rose at an annual rate of 2.8 percent in the July-September quarter, the first increase after a record four straight quarterly declines.

A switch to rebuilding stockpiles could trigger higher factory production and bolster economic growth.

Factories hold about one-third of all inventories, wholesalers hold 25 percent and retailers hold the rest.