Business Inventories Rise 0.4% in March


Businesses boosted their inventories for a third straight month in March, a further sign that they are gaining confidence in the strength of the recovery.

Photo by: Tracy O.

The Commerce Department said Friday that businesses increased inventories by 0.4 percent in March, matching expectations. Total business sales rose 2.3 percent, the best showing in four months and the sixth straight gain in sales.

The hope is that sustained increases in demand will encourage businesses to step up orders and restock depleted shelves, giving a boost to factories and prompting them to rehire workers.

A separate report showed that industrial production rose a strong 0.8 percent in April, better than economists had expected. Manufacturing has been the standout performer so far as the nation emerges from the deepest recession since the 1930s.

The report on March inventories showed that stockpiles held by manufacturers rose 0.3 percent while wholesalers and retailers both increased their inventories by 0.4 percent.

The 2.3 percent rise in total business sales in March was led by a 2.4 percent rise in sales at the wholesale level. Retailers and manufacturers also posted solid gains.

The strong rise in sales and the more modest increase in inventories pushed the ratio of inventories to sales down to 1.24, matching a record low last reached in January 2006. That means it would take 1.24 months to deplete stockpiles at the March sales pace. In February the inventory to sales ratio stood at 1.27 and a year ago it was at 1.46.

Businesses had slashed inventories for 13 straight months through September as they struggled to cut costs during the recession.

The move away from massive inventory liquidation has played an important role in supporting growth over the past two quarters.

The overall economy, as measured by the gross domestic product, grew at an annual rate of 3.2 percent in the January-March quarter and an even faster 5.6 percent in the final three months of last year. About two-thirds of the fourth-quarter growth came as companies slowed the reduction of their inventories.

Factories hold about one-third of all inventories, wholesalers hold 25 percent and retailers hold the rest.