Business stockpiles rose for 17th month in May

AP News
Posted: Jul 14, 2011 11:18 AM
Business stockpiles rose for 17th month in May

Businesses added to their stockpiles for a 17th consecutive month in May. But sales fell for the first time in nearly a year, a sign that many companies could be forced to trim supply levels if the economy weakens.

Business supply levels grew 1 percent in May, the Commerce Department said Thursday. Sales fell for the first time in 11 months. It was the worst showing for sales since June of last year.

Economists worry that businesses may have miscalculated consumer demand and could be stuck with unwanted inventories. That would trigger cutbacks in orders and cause manufacturing activity to slow.

Steven Wood, chief economist at Insight Economics, said that weak sales could mean that business supplies will "make little contribution" to growth in the April-June quarter.

Still, May's rise in inventories pushed total stockpiles to $1.51 trillion. That's up more than 14 percent from the recent low of $1.32 trillion reached in September 2009, when businesses were slashing inventories to control costs in the wake of the deep recession.

Inventories rose at all levels of business. Stockpiles held by manufacturers rose 0.8 percent. Inventories held by wholesalers rose 1.8 percent.

Retailers only increased their stockpiles 0.4 percent. The small rise reflected a 0.7 percent increase in inventories of autos and auto parts and declines in inventories of furniture and building materials. Clothing stockpiles increased 1 percent and inventories of stores such as Wal-Mart and Macy's rose 0.5 percent.

Bleak job growth and high gas prices have shaken consumer confidence. A separate report Thursday showed that retail sales rose just 0.1 percent in June, after falling for the first time in 10 months in May.

For June, the unemployment rate inched up to 9.2 percent and employers added just 18,000 net jobs, the fewest in nine months. That's down from an average of 215,000 jobs per month that were created February through April.

Manufacturing has been one of the strongest sectors of the economy since the recession ended two years ago. Factory activity expanded at a faster pace in June after slowing sharply in May, according to the Institute for Supply Management. Economists have said they expect manufacturing growth to continue in the coming months, but they have cautioned that the gains are likely to be smaller than activity over the past year.

Supply disruptions stemming from the natural disasters in Japan have led to shortages of auto and electronic parts. Falling-but-still-high gas prices this summer has hurt consumer spending, which makes up 70 percent of economic activity.