September business inventories flat while sales up

[November 16, 2011]  WASHINGTON (AP) -- Businesses kept their stockpiles steady in September, marking the first time in nearly two years that they have not boosted their inventories.

The Commerce Department said Tuesday that business inventories were unchanged in September after 20 consecutive monthly gains that stretched back to December 2009. Business sales rose 0.6 percent in September, the fourth consecutive gain.

A slowdown in inventory building trimmed overall economic growth by 1 percentage point in the July-September quarter.

Still, economists say a temporary decline isn't necessarily a bad sign. With sales strong, businesses will likely resume restocking depleted shelves in coming months and that should provide a boost to economic growth in the October-December quarter.

In August, businesses expanded their inventories. But the gains were smaller than early this year. And a report last week showed that inventories held at the wholesale level actually fell 0.1 percent in September, the first decline since December 2009.

The drop at the wholesale level in September was largely because companies cut their stockpiles of nondurable goods, such as farm products, petroleum and clothing. The decline at the wholesale level suggests that businesses were concerned that future sales could slow.

Tuesday's report is a broader look at business stockpiles. It covers inventories held by manufacturers, wholesaler and retailers.

For September, inventories rose 0.1 percent at the manufacturing but fell 0.1 percent at the wholesale and retail levels. Sales were up at all levels led by a 1.1 percent rise for retailers. A separate report Tuesday showed that retail sales were up in October as well, gaining 0.5 percent.

During the recession, businesses had cut back inventories in the face of plunging demand. The restocking that has occurred over the past two years has been a major support for the economy as factories have increased production to meet rising orders.

The overall economy slowed significantly in the first half of this year. A big jump in gasoline prices caused consumers to cut back on their spending on other products.

The economy rebounded in the July-September quarter, expanding at an annual rate of 2.5 percent. While that is still far too slow to make significant improvements in the unemployment rate, the faster growth did ease fears that the economy could be in danger of slipping back into a recession.

Many economists believe that the economy is growing at a similar rate of 2.5 percent in the current October-December quarter.

[Associated Press; By MARTIN CRUTSINGER]

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