Finance & Business World

Inventories at U.S. wholesalers fell for a record 11th month in July as higher sales helped distributors move out more of their excess supply.

The 1.4 percent decline in stockpiles was greater than forecast and followed a revised 2.1 percent drop in June, the Commerce Department said today in Washington. Wholesale inventories have had the longest series of declines since records began in 1987. Sales rose 0.5 percent, the third straight gain.

After a record drawdown of inventories in the second quarter, by $159.2 billion at an annual pace, economic growth is forecast to return over the last half of this year amid stabilizing demand. Low inventory levels will allow producers to boost output to meet new orders as businesses down the supply chain replenish their own stockpiles.

“It’s more indication that the recovery is starting,” said Jonathan Basile, an economist at Credit Suisse Holdings USA Inc. in New York. Leaner inventories and rising sales are “setting you up for a bounceback in output.”

Inventories at wholesalers were forecast to drop 1 percent after a previously reported 1.7 percent drop the prior month, according to the median estimate of 34 economists surveyed by Bloomberg News. Projections ranged from declines of 1.6 percent to 0.4 percent.

At the current sales pace, it would take 1.23 months for distributors to deplete the amount of goods on hand, the lowest since October 2008, compared with 1.25 months in June. The reading was as low as 1.1 months in June 2008. A reduction in months supply leaves more room for companies to buy more goods, helping to support production.

Consumer Confidence

Confidence among U.S. consumers rose more than forecast in September as the pace of job losses slowed and the economy showed signs of pulling out of the recession, a separate report showed today.

The Reuters/University of Michigan preliminary index of consumer sentiment increased to 70.2 this month from 65.7 in August. The index was forecast to rise to 67.5, according to a Bloomberg survey of economists.

Prices of goods imported into the U.S. rose in August for the fifth time in six months, led by an increase in petroleum costs, a Labor Department report showed earlier today.

The 2 percent gain in the import price index followed a 0.7 percent decrease the prior month. Prices excluding fuels rose 0.4 percent, as the cost of industrial supplies and materials rose.

Durable Goods

Today’s inventories report showed stockpiles of durable goods, or those meant to last at least three years, fell 1.5 percent in July after a 1.8 percent decline the prior month. Durable sales increased 1 percent.

Auto inventories declined 2 percent and sales increased 1 credit scores for free.1 percent, today’s report showed. That pushed the industry’s inventory-to-sales ratio for July to 1.74 months, the lowest since June 2008, from 1.8 months.

The reduction in inventories over the first half of the year sets the stage for production to rebound, economists said. Companies including General Motors Co. and Chrysler Group LLC, both automakers that have emerged from bankruptcy, benefited in late July and the month of August from higher sales and demand linked to the government’s “cash-for-clunkers” program.

Car Sales

Last month GM called back 1,350 union workers, its biggest one-time increase in jobs since 2006, as it boosted second-half production in part because of the trade-in program. The administration’s plan, which ended Aug. 24, offered auto buyers discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles.

Cars and light trucks sold at a 14.1 million annual pace last month, up 25 percent from July, industry figures last week showed. It was the biggest gain since October 2001, when automakers including GM introduced zero-percent financing to boost sales following the terrorist attacks on New York and Washington.

Target Corp., the second-largest U.S. discount retailer, is among companies trimming costs to make up for slower sales. “We continue to conservatively manage our inventories to help us navigate the challenging sales environment,” Kathryn Tesija, Target’s vice president for merchandising, said in an Aug. 18 conference call.

Professional Equipment

Stockpiles of professional equipment, such as computers, fell 1.2 percent as sales increased 1.3 percent.

Stockpiles of non-durable goods such as fuels and grains dropped 1 percent after falling 2.5 percent in June. Sales of such items increased 0.1 percent.

A drop in crude oil costs may have pushed down the value of petroleum inventories, which fell 1.6 percent. The average closing price of a barrel of crude oil traded on the New York Mercantile Exchange was $64.29 in July after $69.70 in June.

Wholesalers make up about 25 percent of all business stockpiles. Factory inventories, which account for about a third of the total, fell 0.7 percent in July, Commerce reported on Sept. 2. Retail stockpiles, which make up the rest, will be included in the Sept. 15 business inventories report.

Earlier today, the Labor Department said prices of goods imported into the U.S. rose 2 percent in August, led by energy costs.

Source