US business inventories up 0.4 pct in January, while sales plunge to lowest level in 4 months

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WASHINGTON – U.S. businesses continued to restock their shelves and warehouses in January, but sales plunged during the snowstorm-plagued month.

Inventories rose 0.4 per cent after a 0.5 per cent increase in December, the Commerce Department said Thursday. But sales dropped 0.9 per cent in January after a 0.1 per cent decrease the previous month, putting sales back near September 2013 levels.

The report suggests that winter weather kept shoppers at home. But businesses anticipate a rebound because they expanded their inventories to meet expected demand in the months ahead.

Still, there is a possible danger to economic growth: When companies build their stockpiles as their sales fall, they may end up stuck with more goods than they need.

That potentially forces them to slash prices and sell at discounts in order to clear the extra inventory.

However, the February retail sales figures released separately on Thursday indicate that sales growth has picked up. Retail spending rose 0.3 per cent in February. Retail sales had fallen 0.6 per cent in January and 0.3 per cent in December.

The increase suggests that consumer spending has started to recover after being tempered by snowstorms and freezing temperatures that blanketed much of the country.

Yet overall economic growth could be slower due to the recent decline in sales and inventory expansion that has slowed from its pace in the middle of 2013.

Slower restocking will likely lower growth to about a 2 per cent annual pace in the first quarter of 2014, down from 4.1 per cent in last year’s July-September quarter and 2.4 per cent in the October-December quarter.

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