U.S. Wholesale Inventories Rise 1.1% in June; Sales Up 2.8%

By Bob Willis

Aug. 8 (Bloomberg) -- Inventories at U.S. wholesalers rose faster than forecast in June, led by gains in stockpiles of higher- priced petroleum, farm goods and metals.

The 1.1 percent gain in the value of stockpiles followed a revised increase of 0.9 percent in May, the Commerce Department said today in Washington. Sales jumped 2.8 percent in June, the most since March 2004, after a 2.2 percent gain the prior month.

Distributors had enough supplies on hand to last 1.06 months at the current sales pace, a record low, down from 1.08 the prior month. The low level of inventories signals that companies, faced with slower demand, won't need to abruptly cut back on output as the economy slows, economists said.

``With prudent inventory management as of late, companies have taken some downside risk probably out of this cycle,'' Adam York, an economist at Wachovia Corp. in Charlotte, North Carolina, said before the report. ``Inventories will probably add to growth in the third and fourth quarters. Prices mean a lot to this number.''

Economists forecast wholesale inventories would rise 0.6 percent, according to the median of 37 estimates in a Bloomberg News survey. Projections ranged from a decline of 1.4 percent to a gain of 1.3 percent.

Wholesalers account for about a quarter of all business stockpiles. Factory inventories, which make up about a third of the total, rose 1 percent in June, the government said on Aug. 4. Retail stockpiles, which make up the rest, will be included in the Aug. 13 business inventories report.

Crude Oil Prices

The eighth straight monthly increase in wholesale stockpiles was led by a 8.3 percent rise in the value of petroleum products, 7.1 increase in farm goods and a 4.2 percent gain in metals. Inventories of computer equipment fell 1.2 percent in June and machinery dropped 0.3 percent, the report showed.

Inventories of automobiles remain a concern. Auto inventories increased as demand slumped. Vehicle stockpiles rose 0.5 percent as sales declined 4.7 percent.

Purchases of autos and light trucks dropped in July to the lowest level since 1993, industry figures last week showed. With sales falling, General Motors Corp. and Ford Motor Co., the two largest carmakers, have cut output of SUV's, pickup trucks and other models to clear inventories and meet falling demand.

``We reduced production in North America,'' GM Chief Executive Officer Rick Wagoner said in an interview Aug. 4.

Inventories of durable goods increased 0.6 percent and those of non-durable products advanced 1.8 percent.

Inflation Concern

The increase in petroleum stockpiles came as sales rose 12.7 percent, the biggest jump since April 2002. The average price of a barrel of crude oil in June rose to $134.02, compared with an average of $125.46 the prior month, according to trading on the New York Mercantile Exchange.

Rising prices for fuel and other commodities exaggerated the numbers in today's report, as recent inflation measures have accelerated. A measure of prices tied to consumer spending rose 0.8 percent in June, the most since September 2005, the Commerce Department said Aug. 4.

Companies pared inventories in the second quarter at a $62 billion annual pace, the fastest drawdown since the last three months of 2001, the Commerce Department reported last week in its quarterly growth estimate. That implies that companies are better positioned to absorb falling demand, suggesting the decreasing decline in stockpiles will add to growth in the current quarter, according to Wachovia's York.

``We could be looking at close to a 1 percentage point addition to GDP growth from inventories in the third and fourth quarters,'' he said.

Even as falling inventories pared growth by 1.9 percentage points in the second quarter, the economy grew at a 1.9 percent annual rate. That followed 0.9 percent growth in the prior three months and a 0.2 percent contraction in the last three months of 2007, the Commerce Department said last week.

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