Update: Business Inventories Up 0.8% in May

The gains recorded in May are unlikely to move Fed policymakers to hike rates.
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Updated from 9:50 am. EDT

The

Commerce Department

said Monday that

inventories

for U.S. businesses rose 0.8% in May, a faster pace from the revised 0.5% gain in April.

Sales of items in those inventories were estimated at $895.4 billion, up 1%, following a 0.6% drop in April. The May figure indicates that companies' stockpiles are likely to shrink further because of a slowdown in consumer demand induced by a series of interest rate increases. Sales of total durable goods were up 1.2% from April and total nondurable goods were up 0.8%.

The inventory-to-sales ratio held steady at 1.32 for the second straight month.

Inventories at retailers rose 1.4%, the strongest gain since January 1995 and a number that shocked some economists who expected a maximum gain of 0.8%.

"This shows that things are slowing down a little bit," said Frazier Evans, an economist at

Liberty Financial

.

The gains recorded in May by themselves are inconclusive and unlikely to move

Federal Reserve

Chairman

Alan Greenspan

and the other Federal Reserve policymakers to act. "This is not a super-high-profile number," said Anthony Chan, chief economist at

BancOne Investment Advisors

. "It plays the part of a supporting role." The key is to look at them in the context of other numbers that have already been released.

By that measure, economists have mixed opinions on whether the Fed will continue to raise rates when it next meets, on Aug. 22. There have been signals from some data that U.S. economic growth appears ready to decelerate in the second half of the year, namely the monthly survey of activity in the

manufacturing sector by the

National Association of Purchasing Management

and the index of leading

indicators -- a grouping of government gauges that economists use as a sort of crystal ball for forecasting the course of the economy -- released by the

Conference Board

.

On the other hand, some key parts of the economy recorded a rebound in June after appearing to weaken in May, such as

retail sales and

unemployment. Additionally, the rising wages and salaries seen recently could cause businesses to raise prices in a move to keep up with higher employee costs.

"It does add a little more to the slow growth scenario and intensifies it," Chan commented.

The Fed has already raised interest rates six times in the past year in an attempt to quell consumer and business demand and avoid inflation.