Inventories held by businesses rose for a fourth consecutive month in April while total business sales increased for a 13th consecutive month.
The Commerce Department said Friday that inventories were up 0.4 percent in April after an upwardly revised estimate of a 0.7 percent gain in March. Total business sales rose 0.6 percent in April.
The hope is that demand will remain strong enough to convince businesses to keep restocking their shelves. But a separate report Friday showed that retail sales took a big tumble in May, casting a cloud over hopes for future strength in demand.
Analysts said the 1.2 percent May drop in retail sales, the largest decline in eight months, will be worrisome if it is followed by further declines in coming months since consumer spending is 70 percent of total economic activity.
The April increase in inventories reflected gains of 0.5 percent in stockpiles held by manufacturers, increases of 0.4 percent in inventories at the wholesale level, and 0.2 percent in the retail level.
Total inventories had fallen for 13 consecutive months starting in September 2008. Businesses engaged in a massive liquidation of their stockpiles in an effort to trim costs during a severe recession.
The move away from slashing inventories to restocking has played an important role in supporting growth in the past two quarters. A rise in factory orders has made the manufacturing sector one of the strongest contributors to the economic recovery.
The overall economy, as measured by the gross domestic product, grew at an annual rate of 5.6 percent in the final three months of last year, a surge powered by a swing in inventories.
Growth slowed to 3 percent in the first three months of this year with continued strength from inventories.
The ratio of inventories to sales was unchanged at record low of 1.23 in April, the same as March. That means it would take 1.23 months to deplete existing stocks at the April sales pace. The record low level for the inventory to sales ratio is seen by economists as a good sign that businesses will need to keep ordering to restock shelves in coming months.
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