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The Journal Gazette

Tuesday, April 10, 2012 4:56 pm

US wholesale stockpiles rose 0.9 pct. in February

By DEREK KRAVITZAP Economics Writer

U.S. wholesalers rebuilt their stockpiles at a faster rate in February, suggesting they expect stronger sales.

It may also mean the economy grew slightly more last quarter than economists have estimated. Larger stockpiles require businesses to order more goods. That leads to more production, which boosts growth.

Stockpiles rose a seasonally adjusted 0.9 percent to $478.9 billion, the Commerce Department said Tuesday. The government also revised wholesale inventory growth in January to show a 0.6 percent increase. That was up from the initial reading of 0.4 percent.

Sales by wholesalers rose 1.2 percent in February, largely on the strength of gas, hardware, plumbing and heating equipment. Sales had been unchanged in January.

Wholesale restocking, though up in February, is growing more slowly than at the end of last year, noted Steven Wood, chief economist at Insight Economics. As a result, it will likely make a "modest negative contribution" to first-quarter growth.

Economists had been forecasting first-quarter growth at an annual rate of roughly 2 percent, down from the 3 percent rate in the January-March quarter. But Tuesday's wholesale inventory report caused some to raise their forecasts to between 2.2 percent and 2.6 percent.

The government will issue its first estimate of January-March growth on April 27.

Businesses had slashed their inventories over the summer out of fear that the economy was on the verge of another recession. Once it was clear that that danger would be avoided, many companies stepped up restocking.

Inventories at the wholesale level grew 1.6 percent in the final three months of last year. All levels of business grew at an annual rate of 1.9 percent in the final three months of 2011. The rapid pace of restocking helped the economy grow at its fastest pace in a year and a half.

More robust hiring at the start of the year lifted consumer spending in February by the most in seven months. Consumer spending drives roughly 70 percent of economic activity. If consumers continue to accelerate their spending, businesses will likely keep building their stockpiles.

Still, job growth slowed sharply in March. Employers added just 120,000 jobs last month - half the December-February pace. Economists blamed seasonal factors for much of last week's disappointing report from the Labor Department. They also noted that job figures can fluctuate from month to month and that consistently creating 200,000 jobs a month is tough.

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. Manufacturing inventories represent about 41 percent of the total.