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Business Inventories Rise In November

Thu, 01/14/2010 - 12:20pm
Martin Crutsinger, AP Economics Writer

WASHINGTON (AP) -- Businesses boosted inventories by a bigger-than-expected amount in November, after slashing stockpiles for a prolonged period.

The Commerce Department said Thursday that business inventories rose by 0.4 percent in November, double the 0.2 percent rise that economists had expected. It was the second consecutive rise in inventories after 13 months of declines. The hope is that businesses will begin restocking their depleted shelves, helping to support the economic recovery.

The government reported that total business sales rose by 2 percent in November, the best performance in two years.

The rise in inventories was led by a 1.5 percent increase in stockpiles held by wholesalers. Inventories held by manufacturers rose by 0.2 percent while retail inventories dropped by 0.2 percent in November.

While sales were up strongly at all levels of business in November, a separate report Thursday showed that retail sales fell by a larger than expected 0.3 percent in December, underscoring that the economic recovery is proceeding in fits and starts.

The 13 consecutive declines in overall inventories was the longest stretch of weakness since a record 15 straight drops during a period that covered the last recession in 2001.

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

The overall economy grew at an annual rate of 2.2 percent in the July-September quarter after falling for four consecutive quarters as the country endured the deepest recession since the 1930s.

An even stronger GDP performance is expected for the just-completed October-December quarter with much of that strength expected to stem from businesses switching to rebuilding inventories rather than cutting back. That change will mean stronger orders and rising production at the nation's factories.

The worry, however, is that the rebound could falter if consumer spending, which accounts for 70 percent of total economic activity, weakens in coming months as households grow discouraged by continued high levels of unemployment.

The combination of a 2 percent jump in business sales and a smaller 0.4 percent rise in inventories left the ratio of inventories to sales at 1.28 in November, down from 1.30 in October. That ratio means it would take 1.28 months to exhaust existing stockpiles at the November sales pace.

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