Inventories held by wholesalers rose for a third consecutive month in March while sales increased by more than double the expected amount.
Rising demand is making businesses more confident about the future, a key development needed to sustain the recovery.
Wholesale inventories rose 0.4 percent in March, slightly lower than the 0.5 percent gain that had been expected, the Commerce Department said Tuesday. Sales shot up by 2.4 percent, more than double the 1.1 percent increase economists had forecast.
It marked the 12th straight month that sales have risen at the wholesale level, an encouraging sign for the economic rebound. The hope is that businesses will step up ordering and restock depleted shelves, giving a boost to factories and prompting them to rehire laid-off workers.
Mike England, an economist with Action Economics, said the big sales gain among wholesalers added reinforced earlier reports of March sales increases at the retail and manufacturing levels. Those gains are out-performing market assumptions and bolstering the outlook for the overall economy in the months ahead, he said.
The 0.4 percent rise in March inventories followed gains of 0.6 percent in February and 0.1 percent in January.
Inventories have risen for five of the past six months. A 0.5 percent increase in October was the first gain after 13 consecutive declines. Before October, businesses had gone through a massive liquidation of their stocks as they struggled to contain costs during the recession.
The move away from slashing inventories has played an important role in supporting growth over the past two quarters. Increased orders have helped make manufacturers the standout performers in the recovery so far.
The rise in inventories and even bigger jump in sales pushed the inventory to sales ratio down to 1.13 in March. That means it would take 1.13 months to deplete existing stocks at the March sales pace. The ratio had been at 1.16 in February and stood at 1.39 in March 2009.
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. About two-thirds of that growth came as companies slowed the reduction of their inventories.
The GDP was up 3.2 percent in the January-March quarter. The biggest component of growth in that quarter came from consumer spending, which rose at the fastest pace in three years. Consumer spending accounts for 70 percent of total economic activity.
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