Wholesale inventories and sales rise in September

Costco shopper looks at Hershey’s syrup at Costco in Mountain View, Calif., Saturday, Nov. 6, 2010. Inventories held at the wholesale level rose for a ninth consecutive month in September while sales rose for a third month, encouraging signs that the economic expansion will continue. (AP Photo/Paul Sakuma)

WASHINGTON (AP) — Inventories held at the wholesale level rose for a ninth consecutive month in September while sales rose for a third month, encouraging signs that the economic expansion will continue.

Wholesale inventories rose 1.5 percent in September, a much bigger gain than had been expected, after a 1.2 percent increase in August, the Commerce Department reported Tuesday. Sales at the wholesale level were up 0.4 percent in September after a 0.5 percent rise in August.

Inventory rebuilding has provided critical support as the economy has struggled to emerge from a deep recession. Increased orders to fill empty store shelves have translated into higher production at the nation’s factories.

Manufacturing has been one of the standout performers so far as U.S. factories have benefited from businesses restocking and from stronger export sales.

Many businesses had undertaken a massive liquidation of inventories in early 2009 as they struggled to cope with the recession and plunging demand for their products. But the switch from slashing inventories to rebuilding stockpiles was a big factor supporting economic growth in the final quarter of last year and the first part of this year.

The overall economy, as measured by the gross domestic product, grew at a lackluster pace of 2 percent in the July-September quarter as high unemployment continued to act as a drag on growth. But GDP got support from continued business rebuilding, which helped offset various areas of weakness.

The 1.5 percent rise in wholesale inventories in September was the largest gain since a similar 1.5 percent increase in July. The September rise left wholesale inventories at $417 billion.

Peter Newland, an economist with Barclays Capital Research, said that in addition to inventories rising by double the expected amount in September, the government revised up inventory growth in August to an increase of 1.2 percent, instead of the initial estimate of an 0.8 percent increase.

He said these inventory gains were large enough to boost overall economic growth in the third quarter slightly. He estimated that GDP could come in at 2.1 percent in the third quarter, up from an initial estimate of 2 percent.

The 0.4 percent advance in sales was the smallest increase since sales had actually fallen 0.5 percent in June.

The big increase in inventories in September left the ratio of inventories to sales at 1.18, meaning it would take 1.18 months to exhaust stockpiles at the wholesale level at the September sales pace. That was up slightly from 1.17 months in August.

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