U.S. Wholesale Stockpiles Rise More Than Forecast

By Bob Willis

Oct. 9 (Bloomberg) -- Inventories at U.S. wholesalers rose twice as much as forecast in August as sales dropped by the most in more than a year, indicating companies will need to pare orders as demand slows.

The 0.8 percent gain in the value of stockpiles followed a revised increase of 1.5 percent in July, the Commerce Department said today in Washington. Sales dropped 1 percent, the most since January 2007, led by declines at auto and hardware distributors.

Wholesalers had enough goods on hand to last 1.1 months at the current sales pace, the highest level since February. Middlemen will need to reduce stocks as the credit crunch and mounting job losses cause consumer spending to falter, signaling manufacturing and the economy will keep weakening.

``We're building up too many inventories, and that implies production cutbacks,'' Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts, said in a Bloomberg Television interview. ``We know businesses will clearly be more cautious about their own spending.''

Economists forecast wholesale inventories would rise 0.4 percent, according to the median of 32 estimates in a Bloomberg News survey. Projections ranged from a decline of 0.2 percent to a gain of 1 percent.

By almost all accounts, the U.S. is now in a recession, according to economists surveyed by Bloomberg News this month.

In a Recession


The economy will shrink at a 0.2 percent annual pace in the third quarter and 0.8 percent in the last three months of 2008, according to the median estimate of 52 economists surveyed Oct. 3 to Oct. 8. Growth forecasts were slashed by more than a percentage point for the third and fourth quarters of this year and for the first three months of 2009.

Stocks dropped for a seventh day, led by a slump in financial shares, and Treasury securities also fell. The Standard & Poor's 500 index fell 1 percent to 975.2 at 10:42 a.m. in New York. The yield on the benchmark 10-year note rose to 3.76 percent from 3.64 percent late yesterday.

Fewer Americans filed first-time applications for unemployment benefits last week as job losses related to the Gulf Coast hurricanes subsided, the Labor Department reported today. Initial jobless claims declined by 20,000 to 478,000 in the week that ended Oct. 4. The total number of people on benefit rolls climbed in the prior week to the highest level in five years, indicating the labor market continues to deteriorate.

Breakdown

Wholesalers account for about a quarter of all business stockpiles. Factory inventories, which make up about a third of the total, rose 0.6 percent in August, the government said on Oct. 2. Retail stockpiles, which make up the rest, will be included in the Oct. 15 business inventories report.

The increase in wholesale stockpiles was led by a 1.2 percent rise in the value of automobile stocks as sales dropped 2.2 percent. The inventory-to-sales ratio at auto distributors jumped to 1.77 months, the highest since March 1993.

U.S. sales of light vehicles fell to a 12.5 annualized pace in August, the weakest since March 1993, according to industry data. Ford Co. sales excluding Volvo in September were the lowest since 1981, according to Autodata.

``An already weak economy compounded by very tight credit conditions has created an atmosphere of caution,'' Jim Farley, Ford's worldwide marketing chief, said in a statement on Oct. 1.

Inventories at metals, hardware, electrical and petroleum distributors also increased.

Inventories of durable goods increased 1.4 percent and those of non-durable products dropped 0.1 percent, perhaps reflecting the drop in commodity prices.

Crude Oil Drops

The average price of a barrel of crude oil in August fell to $116.69 from $133.48 the prior month, according to trading on the New York Mercantile Exchange. It reached a record of $147.27 on July 11.

Companies pared inventories in the second quarter at a $50.6 billion annual pace, subtracting 1.5 percentage points from overall growth, the Commerce Department reported Sept. 26 in its quarterly growth estimate.

Even as falling inventories pared growth in the second quarter, the economy grew at a 2.8 percent annual rate, propelled by surging exports. 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.

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