I don't recall Compaq ever making these comments this quarter
(in bold).
U.S. Economy: Lean Inventories, Brisk
Demand May Boost Output
Bloomberg News
June 14, 1999, 11:11 a.m. PT
U.S. Economy: Lean Inventories, Brisk Demand May Boost Output
Washington, June 14 (Bloomberg) -- Lean inventories of goods
at U.S. businesses and growing demand from consumers may trigger
a pickup in factory production later this year, as companies
restock their lots, warehouses and store shelves.
Business inventories rose 0.2 percent in April -- the
smallest increase since January -- after climbing 0.5 percent in
March, the Commerce Department said. Just Friday, another
government report showed that Americans went on a spending spree
in May, boosting retail sales by 1 percent, following a 0.4
percent April increase.
Companies ''may be lagging behind a bit and may have to
raise production'' to catch up, said Russ Sheldon, chief
economist at MCM MoneyWatch in New York.
Financial markets were unmoved by today's report on
inventories, as investors await Wednesday's release of the
consumer price index for May. In April, consumer prices
registered the biggest increase in nine years, fueling concern
that Federal Reserve policy-makers will raise interest rates to
slow the growth rate and guard against accelerating inflation.
Inflation is also showing signs of ticking up. The consumer
price index rose 0.7 percent in April, posting a 2.3 percent rise
over the previous 12 months -- the fastest pace since June 1997.
Recent comments from Fed officials have reinforced expectations
that the policy-setting Federal Open Market Committee will vote
the end of this month to raise the overnight bank lending rate
from its current 4.75 percent.
'Lucky Streak' Over
The nation's ''lucky streak'' with low prices is probably
over, said Jack Guynn, president of the Federal Reserve Bank of
Atlanta today. ''In my judgment, the risks are currently weighted
toward the possibility, though not the inevitability, of growing
inflationary pressures,'' Guynn said.
Even so, the benchmark 30-year U.S. Treasury bond gained for
the first time in two weeks, as the highest yields in more than
18 months lured investors. The bond rising 3/8 point and pushing
down its yield 3 basis points to 6.11 percent. Stocks were mixed,
and the Dow Jones Industrial Average rose 97 points, or 0.9
percent, while the broader Nasdaq Composite Index fell 27 points,
or 1.1 percent.
Some companies are finding they can't keep enough stocks on
hand to match demand. For example, General Motors Corp.'s Allison
Transmission Division has a shortage of transmissions to supply
to automakers.
Without those transmissions, Navistar International Corp.,
the world's fourth-largest truckmaker, must cut back its
production. As a result, Navistar announced last week it would
fire as many as 700 workers, or 13 percent of its employees.
Navistar said it will cut daily production of medium-duty
trucks and school buses 11 percent to 288 vehicles at its factory
in Springfield, Ohio in response to the shortage.
Automakers' Investments
Automakers announced plans this month to invest more than $1
billion to build or expand U.S. factories in an effort to meet
rising U.S. demand for pickup trucks and sport-utility vehicles.
General Motors Corp., Ford Motor Co. and Toyota Motor Corp.
all are adding capacity as well to meet demand for the light
trucks, which usually are more profitable than cars. With annual
sales of pickups, sport utilities and minivans projected to equal
or exceed car sales this year, analysts say there's little risk
that supply will outstrip demand anytime soon.
''Most of these capacity additions can be absorbed without
much of a problem,'' said George Magliano, auto consultant with
the Wefa Group in New York. ''First, existing capacity is already
very strained. Second, a good chunk of this expansion will
supplant imported trucks.''
Profit, Manufacturing Reports
Additionally, world paper companies are likely to raise
their prices of liner board in July due to low inventories, said
Michael Smurfit, chairman of Jefferson Smurfit Group Plc, the
world's largest liner board and container box maker.
Still, analysts reported some industries, such as computer
makers, are weighed down by excess stocks. Last week, Compaq
Computer Corp., the No. 1 personal computer maker, reported it
has too much PC inventory and will have to write down the value
of those machines, which could lead to a loss in the second
quarter, said analyst Ashok Kumar of U.S. Bancorp Piper Jaffray.
A separate Commerce Department report today showed profits
after taxes at major U.S. manufacturers rose in the first
quarter, after weakening in the final three months of 1998. After-
tax profits at major manufacturers averaged 6.1 cents per dollar
of sales during the first quarter of last year, up from the 5
cents reported in the fourth quarter.
And the manufacturing outlook in the Southeast remained
upbeat this month, the Federal Reserve Bank of Atlanta said. The
bank's national production index slipped to 9.1 last month,
compared with 12.5 in April. Still, a positive index means more
of the Southeast's manufacturers see factories around the country
increasing output in their industry, as opposed to cutting back
production.
Moreover, manufacturers in the Atlanta region were more
optimistic about the prospects for their industries nationwide in
the second half of the year.
Inventories and Sales
By industry, retail inventories rose 0.7 percent in April
after increasing 1.6 percent in March, the Commerce Department
said. Auto dealers' inventories rose 1.3 percent, after falling
4.1 percent, and were more than 9 percent higher in April than a
year earlier.
Business sales, which fell 0.1 percent in April for the
first decline since January, have since rebounded. The inventory-
to-sales ratio, which measures the time goods sit at wholesalers,
remained near a record-low level at 1.36 months in April, up from
1.35 months in March.
Further back in the production and delivery process,
wholesale inventories increased 0.2 percent, the same as in
March, while manufacturing inventories decreased 0.1 percent, the
same as in March, the government said.
''In the second half of the year, inventories should
definitely start to accumulate, but it doesn't look like it's
happening yet,'' said Harvinder Kalirai, an economist at IDEA,
Inc. in New York.
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