WASHINGTON, Dec. 13 (UPI) -- The Commerce Department said Friday U.S. business inventories climbed for a sixth-straight month in October, supported heavily by stock-building in the automobile industry.
U.S. business inventories rose 0.2 percent in October to a seasonally adjusted $1.134 trillion following a revised 0.6 percent gain in September.
September inventories were previously estimated as a 0.5 percent increase, the largest monthly rise in more than 2 years. But the gain was centered almost entirely on inventory restocking in the auto industry where low interest rates promoted record sales during the summer.
Most economists on Wall Street were expecting inventories to rise 0.2 percent during the month.
The level of inventories in relation to sales is an important indicator of the near-term direction of production activity, Wall Street experts say.
Investors need to monitor the economy closely because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more moderate growth that won't generate inflationary pressures.
Rising inventories can be an indication of business optimism that sales will be growing in the coming months. By looking at the ratio of inventories to sales, investors can see whether production demands will expand or contract in the near future.
For example, if inventory growth trails sales growth, then manufacturers will have to boost production lest commodity shortages occur. On the other hand, if unintended inventory accumulation occurs (that is, sales do not meet expectations), then production will probably have to slow while those inventories are worked down. In this manner, the business inventory data provide a valuable forward-looking tool for tracking the economy.
As the economy slows, businesses curtail inventories for fear that weak demand will leave them saddled with unsold goods.
Although the economy grew at a solid 4 percent pace in the third quarter, many fear activity slowed again heading into the fourth quarter.
Federal Reserve policymakers left interest unchanged Tuesday at their lowest level in 40 years to support the hesitant economic recovery.
Analysts said businesses likely won't significantly add to their stocks until it becomes clear the U.S. economy is growing at sustained, healthy pace.
The latest report from the Commerce Department showed business sales grew 0.4 percent during the month, a sign the economy may be getting its footing. This pushed the inventory-to-sales ratio down to 1.36 from 1.37 in September.
The ratio, an indicator of how well firms are matching supply with demand, measures how long it would take in months for a firm to sell all of their current inventories.
The report also showed retail inventories, the source of new information in the report, rose by 0.7 percent in October. But excluding autos, retail inventories would have fallen by 0.4 percent.
Wholesale inventories fell 0.3 percent in October, while factory inventories were unchanged. The Commerce Department released that information in separate reports earlier this month.
The rise in retail inventories was led by a 3 percent rise in autos and parts and a 1.3 percent gain in inventories of building supplies.
The report showed inventories at furniture and home furnishings businesses were unchanged while inventories at clothing stores declined by 1.2 percent.
Food and beverage inventories also dropped 1.9 percent.
