Wholesale inventories rose 1 pct in December

[February 10, 2012]  WASHINGTON (AP) -- Wholesale businesses increased their stockpiles sharply in December although the gains are expected to slow in coming months, a development that could curb overall economic growth.

The Commerce Department said Thursday that wholesale businesses boosted inventories by 1 percent in December after no increase in November. The rise came as sales rose 1.3 percent, the best showing in nine months and more than double the 0.5 percent November sales gain. The latest increase pushed stockpiles to $473.9 billion, 22.5 percent above their 2009 lows.

Strong inventory growth was a major factor boosting growth in the final three months of the year, but this trend is expected to slow in the early part of this year. That is a major reason economists are looking for slower overall economic growth in the current January-March period.

Companies tend to build their inventories when they expect stronger sales. Economists believe businesses will keep building inventories in 2012. But they expect the pace to slow from the fourth quarter growth.

The rise in stockpiles was led by a 2.8 percent jump in auto inventories. Auto sales at the wholesale level climbed 3.9 percent in December.

The report showed that it would take 1.15 months to deplete existing stockpiles at the wholesale level at the December sales pace. That was unchanged from November and both months were up only slightly from a record low of 1.13 months hit in March. This figure shows that businesses still have room to expand their stockpiles.

Consumer spending was flat in December and the savings rate increased. Wages failed to keep pace with inflation in 2011. If that trend continues, consumers could pull back even further.

Economists at JPMorgan Chase expect the overall economy will expand at a rate of around 2 percent in the first quarter.

Some economists are more hopeful after last week's government report on January hiring. Employers added 243,000 jobs on a net basis last month, the most since the spring. The unemployment rate fell to 8.3 percent, the lowest in nearly three years.

Still, 8.3 percent unemployment is painfully high. Nearly 13 million people remain unemployed. And one reason the unemployment rate has fallen for five straight months is that many people have stopped looking for work. The government only counts people as unemployed if they are actively searching for a job.

Stockpiles at the wholesale level account for about 27 percent of total business inventories. Stockpiles held by retailers make up about one-third of the total and manufacturing inventories represent about 41 percent of the total.

The Commerce Department will release a more complete report next Tuesday on December inventories at all three levels.

[Associated Press; By MARTIN CRUTSINGER]

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