US business stockpiles grew 0.6 pct. in February

April 16, 2012 - 10:56 AM
Business Inventories

FILE - This Jan. 25, 2012 file photo, shows locks inside of the Master Lock company in Milwaukee. U.S. companies restocked at a steady pace in February, suggesting businesses are more hopeful about sales. (AP Photo/Jeffrey Phelps, File)

WASHINGTON (AP) — U.S. companies restocked at a steady pace in February, suggesting businesses are more hopeful about the economy's prospects this spring.

The Commerce Department said Monday that business stockpiles rose a seasonally adjusted 0.6 percent. That's below January's upwardly revised gain of 0.8 percent.

The increase pushed stockpiles to $1.58 trillion. That's nearly 20 percent above the recent low hit in September 2009, just after the recession ended.

Overall sales grew faster than inventories in February, rising 0.7 percent. That's a good sign because it is evidence that companies aren't building too much inventory, which can lead to cutbacks in production in future months.

And a separate Commerce report showed that U.S. retail sales rose 0.8 percent March, helped by stronger job growth and a mild winter.

More spending by consumers encourages businesses to continue restocking. Inventory growth hasn't slowed at the start of the year as much as economists had expected. The steady pace has led some economists to raise their forecasts for January-March economic growth.

Larger stockpiles require businesses to order more goods. That leads to more factory production, which boosts growth.

"The pace of inventory building is consistent with what you'd expect to see in a gradual expansion," said Tim Quinlan, an economist at Wells Fargo.

Businesses are building up their stockpiles after cutting them over the summer amid recession fears. A big jump in restocking was a key reason the economy grew at an annual rate of 3 percent in the October-December quarter.

Steady inventory growth in the first quarter, along with a narrower trade deficit in February and stronger retail sales, has lifted the outlook for growth.

James Marple, an economist at TD Bank, expects growth of about 2.7 percent in the January-March quarter, a full point higher than his estimate a month ago.

Still, greater restocking usually results in only a temporary increase to growth. Consumers must continue spending to keep stockpiles growing. So far, sales are rising quickly enough to keep businesses reordering goods.

Job growth is crucial to encourage Americans to spend more. It was strong from December through February. But employers added just 120,000 jobs in March — half the pace from the previous three months. That's raised concerns that job growth could be slowing.

Many economists think March's slowdown was temporary. In the past three months, job gains have averaged 212,000 per month. The unemployment rate has dropped from 9.1 percent in August to 8.2 percent last month.

If the economy continues to average roughly 200,000 new jobs per month, consumers are likely to feel more comfortable about spending.