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Business Inventories Higher Than Expected


A new Commerce Department report shows business inventories in the U.S. increased 1% in January, marking the largest one-month gain since May of 2011. Experts say the increase – realized as sales fell and warehouses restocked – suggests the potential for significant economic improvement in the first quarter. Analysts had predicted a more modest rise in inventories, following a 0.3% jump in December.

Automotive inventories increased 1.9% in January, the biggest gain in six months. Meanwhile, retail inventories (which exclude auto figures) rose a significant 1.3%, the largest monthly jump in over a decade. Retail inventories factor into gross domestic product (GDP) calculations, making it a closely-watched economic measure. At the close of 2012, lackluster inventories subtracted 1.6 percentage points from fourth-quarter GDP, limiting overall growth to just 0.1%.

Wholesale inventories, which account for 30% of all business stockpiles, rose 1.2% in January, the Commerce Department reported. Factory inventories, which make up another 40% of stockpiles, increased 0.5%. At the pace of sales in January, experts say it would take 1.29 months for businesses to clear their shelves, the highest number since August.

Coupled with the steady rise of U.S. employment, economists believe higher inventories could lead to a 2% GDP increase in the first quarter of 2013. Another key determinant in the state of the economy is consumer spending, which improved 1.1% in February. However, analysts caution a large chunk of that spending was on gasoline, which negatively affected discretionary income. Sales at gas stations jumped 5% last month compared to January, government data showed.

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