October wholesale inventories rise unexpectedly

Businesses unexpectedly added to inventories at the wholesale level in October, breaking a record string of 13 straight declines. It was a hopeful sign that companies will begin restocking depleted store shelves, helping to bolster the fragile economic recovery.

Wholesale inventories rose 0.3 percent in October, the Commerce Department said Wednesday, easily beating economists' expectations of a 0.5 percent decline. Inventories dropped 0.8 percent in September.

Sales at the wholesale level rose 1.2 percent in October, also stronger than the 0.7 percent rise economists expected. It followed a 1.3 percent increase in September and marked the seventh straight month that sales at the wholesale level have risen.

Steadily rising sales should help encourage businesses to restock shelves, boost production and bolster a broad recovery. The worry is the rebound could still falter if consumer spending, which accounts for 70 percent of economic activity, slumps in the face of continued high unemployment.

Wholesale inventories are goods held by distributors who generally buy from manufacturers and sell to retailers. They make up about 25 percent of all business stockpiles. Factories hold another third of inventories and retailers hold the rest.

Even with the slight rise, wholesale inventories at a seasonally adjusted $326.1 billion were still 13.5 percent below the year-ago level. Still, the October increase marked the first gain since a 0.7 percent rise in August 2008.

With the rise in sales outpacing the rise in inventories, the inventory to sales ratio slipped to 1.16. That means it would take 1.16 months to deplete existing inventories at the October sales pace. It marked the seventh straight month that the inventory-to-sales ratio has fallen.

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 economic growth.

But consumer spending remains a concern. The unemployment rate dipped to 10 percent in November, down slightly from a 26-year high of 10.2 percent set in October.

Last month's decline has given economists hope that the economy may begin to generate new jobs by as early as January or February. But the unemployment rate may climb for several more months as many Americans who have dropped out of the work force renew their job searches and add to the ranks of the unemployed.

After consecutive gains, the nation's retailers reported a sales decline last month, an ominous sign for the holiday shopping season. A diverse group of stores including Macy's Inc., Saks Inc., Abercrombie & Fitch Co. and Target Corp. posted sharper-than-expected sales declines in November.

The 13 consecutive declines in wholesale inventories were the longest stretch on records that date to 1992, breaking the old mark of nine straight set in the last recession in 2001.

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