Ahead of the Bell: Wholesale Inventories

US businesses have slowed inventory restocking this year following huge gain in late 2011

Associated Press

WASHINGTON (AP) -- Businesses likely slowed their restocking of store shelves this year following a big jump in inventory building at the end of last year.

The Commerce Department will report on inventories for April on Friday at 10 a.m. Eastern time. Many economists were looking for another modest gain with analysts forecasting that sales at the wholesale level rose 0.4 percent, according to a survey by FactSet.

Businesses order more goods when they increase their stockpiles. That typically leads to more factory production and economic growth.

It would have taken roughly five weeks to exhaust all wholesale stockpiles at the March sales pace. That's considered a healthy time frame and suggests businesses will keep restocking to meet demand.

Inventories are expected to keep growing this year, though probably nowhere near the level seen at the end of last year.

Many businesses cut back on restocking last summer fearing that the economy was on the verge of another recession. When it became clear that it wasn't, they raced to rebuild stockpiles and keep pace with consumer demand.

In the first three months of this year, the economy grew at an annual rate of 1.9 percent. That gain was driven by the fastest growth in consumer spending since late 2010.

Consumers spent more partly in response to strong hiring. But hiring has slowed sharply over the past two months. In May, employers add just 69,000 jobs, the smallest increase in a year, and the unemployment rate edged up form 8.1 percent in April to 8.2 percent in March.

And wages have continued to lag as well. Sluggish job growth and weak pay raises threaten to drag on consumer spending. That would weaken growth. Consumer spending accounts for 70 percent of economic activity.

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 40 percent of the total.

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