WASHINGTON (AP) — Wholesale companies likely increased their stockpiles of autos, clothing and other goods in October, a trend that could boost economic growth in the current quarter.
Economists forecast that distributors and other wholesale businesses increased their inventories by 0.4 percent, according to a survey by FactSet. That follows a drop of 0.1 percent in September, the first decline in nearly two years.
The Commerce Department will issue the report, which also includes wholesale sales, at 10:00 a.m. Eastern on Thursday.
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 a full percentage point off economic growth. Companies likely cut back their stockpiles out of concern over future economic growth. Europe's financial crisis intensified in the late summer and fall and Standard & Poor's downgraded long-term U.S. government debt in August. The stock market gyrated wildly in response and some economists worried the U.S. economy could slip back into recession.
But there are signs companies are rebuilding their stockpiles as the economy has regained its footing. Last week, the government said manufacturers increased their inventories 0.9 percent in October.
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.
The government issues three reports on inventories: one at the manufacturing level, another at the wholesale level, and an overall report next week that includes retailers as well as the first two groups.
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.
Still, wholesale inventories are lean, compared to sales. In September, the ratio of inventories to sales was 1.15, the same as August. That means it would take 1.15 months to exhaust the current level of stockpiles. That's close to the record low of 1.13 hit in March.
There are some signs that the economy and job market are improving modestly. The unemployment rate fell to 8.6 percent in November, the government said last week, down from 9 percent the previous month. That's the lowest rate in two and a half years.
Still, about half the decline stemmed from a drop in the size of the work force.
Manufacturing firms are boosting output, a survey last week showed, and retailers have reported a strong start to the holiday shopping season.
But the economy is still vulnerable to a shock from overseas. European leaders are struggling to contain a two-year old debt crisis and the 17 nations that use the euro are likely already in recession, economists say. That could slow U.S. exports and drag on U.S. growth next year.
European leaders are holding a crucial summit Thursday and Friday in an effort to resolve the crisis. Treasury Secretary Timothy Geithner is in Europe this week as part of a U.S. effort to push for a comprehensive solution.
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