Ahead of the Bell: Business Inventories
WASHINGTON (AP) — U.S. companies likely added to their stockpiles at a slower pace in May, reflecting a slowdown in sales.
Economists expected business inventories rose a modest 0.2 percent in May, just half the 0.4 percent gain in April, according to a survey by FactSet.
Total business inventories rose to $1.58 trillion in April, 19.7 percent higher than the low reached in September 2009, a period when businesses were slashing inventories in response to the deep recession.
The government reported last week that inventories held by wholesale businesses rose 0.3 percent in May while sales at the wholesale level fell 0.8 percent. That was the biggest sales decline since March 2009.
When businesses step up restocking, they order more goods. That generally leads to increased factory production and higher economic growth.
But stockpile growth largely depends on the spending habits of U.S. consumers and businesses. Americans barely increased their spending at retail businesses in April and May, constrained by weak job creation and paltry wage increases.
The economy grew at a lackluster 1.9 percent annual pace in the January-March quarter, down from 3 percent annual growth at the end of last year.
A key reason for the winter slowdown was that companies restocked more slowly. Nearly two-thirds of the economic growth in the October-December quarter last year came from a surge in restocking.
Many economist believe overall economic growth in the April-June period will be very much like the pace set in the first quarter and possibly even weaker. The forecasts range from 1.5 percent to 2 percent growth in the second quarter and many analysts believe second half growth will be only slightly higher at perhaps 2 percent.
High unemployment and tiny pay raises have made consumers more cautious about spending. Consumer spending, which drives roughly 70 percent of economic activity, was flat in May.
Wholesale stockpiles 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 40 percent.
