- The Washington Times - Friday, February 14, 2003

WASHINGTON, Feb. 14 (UPI) — The Commerce Department said Friday U.S. business inventories rose for the eighth straight month in December as some companies replenished their stockpiles to keep pace with consumer demand.

The government agency said U.S. business inventories rose 0.6 percent in the final month of 2002 to a seasonally-adjusted level of $1.143 trillion after rising 0.3 percent in November.

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.

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 lags 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.

Even though business inventories have climbed for several months, during the past three months the gains have mostly been a result of restocking by the auto industry, suggesting the rest of the economy wasn't as strong.

Analysts say 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 the inventory-to-sales ratio, a gauge of the time goods sit on store shelves, inched up to 1.37 months from 1.36 months in November.

The report showed that business sales rose 0.2 percent after growing 0.1 percent during November.

Retail inventories, the source of new information in the report, rose 0.6 percent after rising 0.8 percent in November. Sales jumped 2 percent after rising 0.5 percent in November.

Retail inventories at auto dealers improved 0.1 percent after climbing 1.5 percent in November.

Stockpiles at clothing and department stores rose 1.1 percent during the month after rising 0.9 percent during the previous month while building materials inventories increased 1.2 percent after falling 0.6 percent.

Stockpiles at manufacturers, which account for about 40 percent of the report, rose 0.5 percent after slipping 0.2 percent a month earlier.

Food and beverage inventories rose 1.4 percent after rising 0.6 percent during the previous month.

Wholesale inventories rose 0.8 percent in December after rising 0.2 percent in November. Sales fell 0.8 percent after rising 1.1 percent during the previous month.




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