Inventories rise after 15 months of decline
WASHINGTON (AP) – U.S. companies, keeping a watchful eye on the unfolding economic recovery, added to their stocks of unsold goods for the first time in 16 months. The Commerce Department reported Monday that stockpiles of goods on shelves and back lots edged up to a seasonally adjusted $1.1 trillion in May, a 0.2 percent increase from April’s level.
Some economists, including Clifford Waldman of Waldman Associates, viewed that as a hopeful sign that companies may be feeling a little better about the recovery, which has lost steam since the beginning of the year. Others believed inventories went up because of weak sales. Businesses’ sales slid by 0.4 percent in May from April.
Regardless, most economists agreed that the massive inventory liquidation seen over the last 18 months is coming to an end, which bodes well for ramped-up production in the future.
“Inventories are still tight, with demands growing, so producers are still getting the green light to produce more,” said Ken Mayland, an economist and president of ClearView Economics.
May’s increase in inventories was the first since January 2001. Many analysts had forecast a 0.1 percent reduction. In April, businesses reduced their inventories by 0.2 percent, helped by a 1.7 percent increase in sales.
As inventories have diminished, factories have been boosting production to replenish stocks, a benefit for the economy’s recovery.
Inventories began piling up last year as the economy slowed, then fell into recession. To pare excess stocks, companies heavily discounted merchandise and offered free financing and other incentives. Factories throttled back production. Inventory liquidation, while necessary to bring supplies in line with demand, was a major factor in the economic slump.
Although the recovery is advancing, improvements have been spotty, the Federal Reserve has said in a survey of business conditions around the country. The behavior of consumers, whose spending accounts for two-thirds of the country’s economic activity, and businesses, whose deep cuts in capital investment helped push the economy into recession, will shape the recovery.
Inventories at retailers rose 1 percent in May as sales fell by 1.2 percent. At wholesalers, inventories nudged up 0.1 percent as sales dipped by 0.2 percent. Manufacturers saw inventories drop by 0.4 percent, helped by a 0.2 percent increase in sales.
Some economists worry that higher unemployment, a wave of accounting scandals that has shaken confidence in corporate America and the sour stock market might damp the willingness of consumers to spend and businesses to invest, which would further slow the recovery.
Citing worries about the strength of the rebound, the Federal Reserve has opted to leave short-term interest rates at 40-year lows at each of its four meetings this year. Growing numbers of economists believe the Fed might leave rates unchanged for the rest of the year.
“The inventories increase in May says that businesses are gaining a more positive view of the economy,” Waldman said. Nonetheless, he predicted: “I think the recovery is going to be in fits and starts, probably well into next year. We won’t be flying, but we won’t be sinking.”
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