Businesses increase stockpiles 0.8 pct in October

[December 14, 2011]  WASHINGTON (AP) -- U.S. businesses increased their stockpiles in October after slowing inventory growth in the previous month. The buildup in inventories should help the economy grow modestly in the final months of the year.

The Commerce Department said Tuesday that business inventories rose a seasonally adjusted 0.8 percent. Sales increased 0.7 percent, the fifth straight gain.

In September, businesses didn't increase their stockpiles after 20 months of gains. Many companies seemed concerned that consumer demand would fall after little growth in the first half of the year.

Yet the economy grew at an annual rate of 2 percent over the summer, even after companies cut their inventories. The key reason for the growth was consumers -- their spending grew at triple the rate from the spring.

Economists expect slightly stronger growth in the October-December quarter, partly because of the increase in inventories.

Steven Wood, chief economist at Insight Economics, said that even with a "relatively lean" level of business sales and inventories, stockpiles should make a "small positive contribution" to the U.S. economy in the final quarter of the year.

For October, inventories rose 0.9 percent at the manufacturing level and 1.6 percent at the wholesale level. That suggests businesses were optimistic that future sales could rise.

But retail inventories were unchanged. That was despite a separate report Tuesday that showed retail sales rose in November for the sixth straight month.

When companies build up their inventories, it usually signals that they expect more sales. And the extra factory production needed to increase stockpiles boosts economic output.

The U.S. economy is vulnerable to shocks from overseas. European leaders are struggling to contain a two-year old debt crisis and the 17 nations that use the euro may already be in recession, economists say. A recession in Europe could slow U.S. exports and reduce growth next year.

During the Great Recession, businesses 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.

[Associated Press; By DEREK KRAVITZ]

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