US inventories rose in April

Inventories in the U.S.
rose 0.4 percent in April, less than the gain in sales, putting companies in a
better position to weather a slowdown in demand last month.

Companies had enough goods on hand
to supply 1.23 months’ worth of sales at April’s pace, matching the record low
reached a month earlier. The need to replenish depleted stockpiles helped
propel economic growth over the past two quarters, a boost that will probably
diminish in coming months.

“Inventory accumulation should be
slowing, contributing less to economic growth,” Michael Gregory, a senior
economist at BMO Capital Markets in Toronto,
said before the report. “One of the reasons why I think you would start to see
inventory growth slow a bit is anticipation of sales slowing.”

Retail sales unexpectedly dropped
in May, signaling consumers boosted savings as employment slowed and stocks
fell, another report from the Commerce Department showed today.

Purchases decreased 1.2 percent,
the first drop since September 2009. Demand plunged at building-material
stores, reflecting the end of a government appliance rebate, and sales fell at
auto dealers, in contrast to industry figures which showed a gain.

Stockpiles vs. Sales

April’s inventory-to-sales ratio
matched the March reading as the lowest since comparable records began in 1992.

Retailers’ inventories, the only
part of today’s report not previously released, increased 0.2 percent in April
after jumping 0.9 percent a month before. Sales, excluding food, increased 0.6
percent.

Saks Inc., the New York-based
luxury retail chain, last month reported first-quarter earnings that beat analysts’
estimates after marking down fewer goods following a 9.9 percent reduction in
inventories.

Factory inventories rose 0.5
percent and wholesale stockpiles increased 0.4 percent.

Stockpile replenishment added 1.65
percentage points to gross domestic product in the first quarter, down from
3.79 percentage points in the last three months of 2009, according to Commerce
Department estimates released May 27. While the contribution to GDP may
diminish, efforts to meet demand and to restock shelves will still support economic
growth.

Factory Pickup

Efforts to rebuild inventories are
among the reasons manufacturing has picked up. The Institute for Supply
Management said last week that its factory index totaled 59.7 in May. Fifty is
the dividing line between expansion and contraction.

The ISM manufacturing gauge for
customer inventories fell to 32, matching the lowest on record.

Factories are “trying to make up
some ground with inventories,” Norbert Ore, chairman of the purchasing managers’
factory survey, said on a conference call June 1.

Other firms continue to say they’re
restraining spending. American Eagle Outfitters Inc. plans to cut inventory
levels in the second half after increasing stock by 15 percent in the first
quarter, chief financial officer Joan Hilson said on a conference call May 26.
The retailer projected a second-quarter profit that was below analysts’ estimates
and cited “weaker business trends early in the quarter.”

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