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WASHINGTON (AP) â¿¿ Wholesale companies increased their stockpiles of autos, paper, and other goods in October by the most in five months, a sign they expect consumer demand to rise.
The Commerce Department said Thursday that wholesale inventories grew 1.6 percent, the most since May. Rising stockpiles of nondurable goods, such as paper and petroleum, drove the increase. September's figure was also revised to show that inventories were unchanged, up from last month's estimate of a 0.1 percent decline.
Sales at the wholesale level increased 0.9 percent, after a 0.3 percent increase in September.
When companies build up their inventories, it usually signals that they expect more sales. And the extra factory production needed to increase stockpiles boosts economic output.
Overall inventories shrank in the July-September quarter, shaving more than 1.5 percentage points off economic growth. Companies likely cut back their stockpiles out of concern over future economic growth.
Companies are now rebuilding their stockpiles as the economy is showing signs of improvement. In addition to the wholesale gains, manufacturers increased their inventories 0.9 percent in October, the government said on Monday.
Ellen Zentner, an economist at Nomura Securities, said the report "confirms the big rebound in inventory building that we expected to take place this quarter." That could add as much as 1.5 percentage points to growth in the October-December period, she said.
Rising inventories are a big reason economists expect growth will improve in the fourth quarter. Most expect the economy to expand by an annual rate of about 3 percent, up from 2 percent in the July-September quarter.
Over the past two years, companies have rebuilt their inventories after cutting them to the bone in the recession. That restocking is a big reason the manufacturing sector has been one of the strongest industries in the recovery.