Business Inventories Rise in May

Monday, July 17th 2000, 12:00 am
By: News On 6

WASHINGTON (AP) — U.S. companies boosted inventories in May by the fastest pace in six months as businesses tried to keep up with robust sales.

Stockpiles of goods on shelves and back lots nationwide rose by 0.8 percent in May, twice as fast as many analysts expected, to a seasonally adjusted $1.18 trillion, the Commerce Department said Monday.

``This suggests that real inventory accumulation accelerated in the second quarter,'' adding to overall economic growth, said Merrill Lynch economist Stan Shipley.

May's increase, the largest since a 0.9 percent rise in November, mostly reflected a big inventory buildup by retailers.

At the same time, sales posted the biggest gain since March, rising a strong 1 percent to $895 billion, with manufacturers leading the way.

The report ``indicates that producers believe consumers are far from tapped out,'' said Richard Yamarone, economist with Argus Research Corp.

May's sales increase left the inventory-to-sales ratio unchanged but near a record low. The ratio stood at 1.32 months in May, meaning it would take 1.32 months to exhaust inventories at the May sales pace. The ratio hit a record low of 1.31 months in March.

The Federal Reserve has boosted interest rates six times over the last 13 months to slow the pace of economic growth and its main engine, consumer spending, which would serve to keep inflation in check.

Other recent economic reports have suggested the Fed's rate increases are working. Given that, some analysts believe odds are good that the central bank won't raise rates at its Aug. 22 meeting.

On the inventory front, retailers posted the biggest gain in May. They boosted inventories by 1.4 percent to $382.3 billion, the fastest pace since January 1995. In April, retailers' inventories rose by 0.3 percent.

Retailers' sales grew by a modest 0.3 percent in May, however, to $267.9 billion. Sales dropped by 0.5 percent in April.

Economists weren't sure how to reconcile retailers' big boost to inventories in May with the modest sales increase.

``The question with retailers is did they deliberately stock shelves higher because they believe consumer spending will continue at a brisk pace, or did they just miscalculate because they didn't anticipate a slowdown in such spending?'' asked economist Clifford Waldman of Waldman Associates.

Wholesalers increased their inventories by 0.8 percent in May to $319.8 billion, down from a 0.9 percent rise the month before. Sales at wholesalers rose by a solid 0.4 percent in May to $247.4 billion after a 0.3 percent increase in April.

Factories boosted their inventories by just 0.2 percent to $478.7 billion, down from a 0.4 percent gain in April.

But manufacturers led the way in sales. Factories' sales grew by a sizable 1.9 percent to $380 billion in May after a 1.2 percent April decline.

In April, total inventories grew by 0.5 percent, slightly faster than the government previously estimated, while sales fell by 0.6 percent.