US wholesale stockpiles fell as sales plummeted

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By CHRISTOPHER S. RUGABER, Associated Press

WASHINGTON (AP) — U.S. wholesale companies cut back their stockpiles in June as sales fell by the most in three years. The declines in sales and inventories could signal slower growth in the coming months.

Wholesale inventories dropped 0.2 percent in June, the Commerce Department said Thursday. That's the largest drop in nine months. Sales at the wholesale level fell 1.4 percent, the sharpest decline since March 2009.

Even though stockpiles declined, the steeper drop in sales means it would take wholesalers longer to clear out their inventories. That suggests they may order fewer goods to keep their stockpiles from getting any larger. That could lower factory production and slow growth.

The government estimated last month that the economy expanded at an annual rate of 1.5 percent in the June-April quarter. It will offer the second of two estimates on Aug. 29.

Some economists are predicting slightly stronger growth after the government reported a big drop in June from May in the U.S. trade deficit. A narrower deficit acts as less of a drag on growth because it means the United States is spending less on foreign-made products and taking in more from sales of U.S.-made goods.

Peter Newland, an economist at Barclays Capital, says he expects second-quarter growth to be a little stronger annual pace of 1.8 percent. Newland had raised his estimate earlier Thursday to 2.2 percent but tempered his forecast after seeing the weaker data on inventories.

Sales of industrial machinery fell by the most in nearly three years, while sales of electronic goods, petroleum, and metals also fell.

Stockpiles at the wholesale level stood at $481.9 billion in June. That's 25 percent above the post-recession low of $384.9 billion in September 2009.

Consumer spending and business investment slowed this spring. Americans increased their spending at an annual rate of only 1.5 percent in the April-June quarter, down from 2.4 percent in the first three months of the year. Businesses cut back on orders for long-lasting factory goods.

Americans are spending less at the same time that hiring has slowed. Employers added only 73,000 jobs per month from April to June, about a third of the pace in the first quarter.

Hiring picked up a bit in July, when employers added 163,000 jobs. But the unemployment rate still rose to 8.3 percent from 8.2 percent in June.

Many businesses slowed restocking last summer fearing that the economy was on the verge of another recession. When it became clear that it wasn't, they raced to rebuild stockpiles and keep pace with consumer demand.

As a result, inventory restocking was a huge contributor to growth in the final three months of last year. It accounted for more than half of that quarter's growth.

Companies then pared their stockpiles in the first quarter. And in the April-June quarter, companies restocked their shelves, boosting growth a bit.

Stockpiles at the wholesale level account for about 27 percent of total business inventories. Stockpiles held by retailers make up about one-third of the total. Manufacturing inventories represent about 40 percent of the total.

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