June business inventories up 0.2%
By Rachel Koning, CBS.MarketWatch.com
Last Update: 9:45 AM ET Aug. 14, 2002
WASHINGTON (CBS.MW) - Paced by a jump in stocks of cars and trucks, inventories at U.S. businesses expanded by 0.2 percent in June, the Commerce Department reported Wednesday.
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The increase was slightly more than the 0.1 percent rise predicted by Wall Street economists.
Sales were up 0.3 percent in June. May inventories rose an unrevised 0.2 percent, while May sales fell 0.3 percent.
The back-to-back increase in inventories is the first since late 2000/early 2001, a Commerce official confirmed.
Consumer demand has recovered this year but still remains relatively tepid for big-ticket items. Any inventory increase may show that businesses are having a hard time moving items. Most reduced production for much of last year and early this year as demand slowed and existing stockpiles had to be reduced. Inventories had fallen for the 15 months that preceded May.
The report had minimal impact for financial markets. See Market Snapshot and Bond Report.
Manufacturers inventories fell 0.1 percent in June, while stocks at retailers expanded 0.5 percent and at merchant wholesalers fell 0.3 percent.
Motor vehicle and parts inventories rose 0.9 percent. Retail sales data issued this week confirmed that dealerships heavy with supplies largely relied on the zero-percent financing and other incentives to move vehicles off the lot in July. Retail inventories excluding autos was up 0.3 percent.
The overall inventory-to-sales ratio stood at 1.36 in June, unchanged from May and still hovering just over an all-time low. This is an indication that despite the back-to-back increase in inventories. Production is currently keeping pace with demand and would have to kick into a higher gear when demand returns.
"The inventory-to-sales ratio outside the auto sector is still barely above its all-time low, suggesting that there is little scope for retailers aggressively to cut inventory if sales are now slow," said Ian Shepherdson, chief U.S. economist with High Frequency Economics.
"This position contrasts with last year, when retailers reduced inventory aggressively, speeding the drop in GDP. Manufacturers and wholesalers are in a similar position; there is no room for another big inventory correction now."
This report is in line with other releases that show business expansion has been slow to take off as the nation tries to keep alive a modest recovery.
But some economists see uplifting signs that the recovery is forming a solid foundation.
"Inventory cuts have subsided, as the economy's inventory-to-sales ratio has stabilized at a low level," said Francis Markey, economist with The Dismal Scientist. "Thus, businesses are positioned well for renewed growth when macro-level demand does fully recover."
The nation's central bank on Tuesday expressed its belief that interest rates are currently low enough to keep the economy on its feet.
The Federal Reserve left a key interest rate at a 40-year-low 1.75 percent.
However, the group said it now has shifted its view of economic risks from neutral to a greater chance for a return to recession. See related story.
Wall Street is mixed in its prediction for a rate cut yet this year.
A mixed bag of economic data has prompted the forecasters looking for easier borrowing costs to predict only one rate reduction by the end of 2002, down from the three or four many were confident would have to be administered by the central bank this year.
Rachel Koning is a reporter for CBS.MarketWatch.com in Washington. |
