WASHINGTON – U.S. businesses added to their stockpiles in October while sales fell, a sign that companies may order fewer goods in the coming months.
The Commerce Department says inventories rose 0.4 per cent, down from a 0.7 per cent increase in September and the smallest gain in four months. Sales, meanwhile, dropped 0.4 per cent.
Rising inventories and falling sales suggest that companies may have ordered more goods than they need. As a result, they are likely to cut back on orders in the coming months, which would slow factory output and economic growth.
A ratio of inventories to sales rose to its highest level in three years in October. That also indicates that companies may have restocked too much.
A big increase in stockpiles accelerated economic growth in the July-September quarter.
Most economists say inventory growth is slowing in the final months of the year. A big reason for that is that businesses and consumers appear more cautious because they are worried about the “fiscal cliff.” That’s the name for steep tax increases and government spending cuts that will take effect next year unless Congress and the Obama administration strike a deal to avert them.
Consumer spending slowed slightly in the July-September quarter and may show only modest gains in the final three months of the year. Businesses, meanwhile, cut back on their spending on equipment and software in the third quarter.
Companies did keep creating jobs last month. Employers added 146,000 jobs in November. That suggests businesses may not be too nervous about the fiscal cliff. And if a budget deal can be reached to avoid the cliff, most analysts expect hiring and economic growth could accelerate next year.
In an effort to bolster economic growth, the Federal Reserve said Wednesday that it plans to keep interest rates at ultra-low levels even after unemployment falls significantly as long as inflation remains tame.
The Fed, wrapping up its final meeting of 2012, also announced that they would keep spending $85 billion each month to buy Treasury bonds and mortgage bonds in an effort to push long-term interest rates down and encourage borrowing and spending.