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Ahead Of The Bell: US Wholesale Inventories

WASHINGTON (AP) â¿¿ Wholesale companies have been increasing their stockpiles in response to solid sales gains.

The Commerce Department plans to report on the October performance for inventories and sales at the wholesale level at 10 a.m. EST Tuesday.

In September, wholesale companies increased their stockpiles by the biggest amount in nine months while their sales rose by the largest amount in 18 months.

The faster inventory growth along with stronger export sales prompted the government to boost its estimate for overall economic growth in the July-September quarter to a 2.7 percent rate, up from an initial estimate of 2 percent.

When businesses order more goods, it generally leads to more factory production and that boosts economic growth.

But many economists believe that growth has slowed in the current October-December quarter, in part because companies are likely cutting back on restocking on worries about tax increases and government spending cuts that will take effect in January if Congress and the Obama administration do not reach a budget agreement.

Analysts are also concerned that if the trend in sales slows, it could give companies less incentive to boost their stockpiles. Consumer spending, which accounts for 70 percent of economic growth, slowed slightly in the July-September quarter and it may show only modest gains in the final three months of the year.

However, hiring has picked up and consumers are feeling more optimistic, so that could help sales as long as worries about the budget negotiations and possible tax increases don't undermine that confidence.

Last week, the government reported that employers added 146,000 jobs in November and the unemployment rate dipped to a four-year low of 7.7 percent.

While the job growth was modest, it was encouraging because it defied disruptions from Superstorm Sandy and employers' concerns about the so-called fiscal cliff.

Analysts believe that the job market's underlying strength suggests that if the White House and Congress can reach a budget deal to avoid the cliff, hiring and economic growth could accelerate next year.

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