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updated: 9/12/2012 11:23 AM

U.S. wholesale stockpiles up in July but sales fell

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Associated Press

WASHINGTON -- U.S. wholesalers increased their stockpiles in July from June, but sales fell for a third straight month. Declining sales could force companies to cut inventories in coming months, a troubling sign that economic growth could weaken.

The Commerce Department said Wednesday that wholesale stockpiles grew 0.7 percent in July, the biggest increase in five months.

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Sales fell 0.1 percent following declines of 1.4 percent in June and 1.1 percent in May. That marked the longest stretch of weakness since seven straight monthly declines ending in January 2009, a period when the country was in recession.

The slump in sales means it will take wholesalers longer to clear out their stockpiles and could result in cutbacks in orders to factories. That would mean less production and weaker economic growth.

Steven Wood, chief economist at Insight Economics, said the July decline in sales was "another reflection of the softening economy." But he said stockpiles remain at lean enough levels that this rise was not worrisome at the moment.

In July, total U.S. inventories stood at $485.2 billion, 26.1 percent higher than the post-recession low of $384.9 billion in September 2009. As businesses saw demand picking up, they became more hopeful and resumed restocking to meet rising demand.

A weaker global economy has cut demand for U.S. exports, which has weakened U.S. manufacturers this year. At the same time, tepid growth in U.S. hiring has made American consumers more cautious about spending.

U.S. factory activity shrank in August for the third straight month, according to the Institute of Supply Management's closely watched manufacturing survey.

The U.S. trade deficit grew to $42 billion in July from June, the government said Tuesday. Fewer exports to Europe, India and Brazil offset a steep decline in oil imports.

U.S. employers added just 96,000 jobs in August. That's down from 141,000 in July and far below the average 226,000 a month created in the January-March quarter.

Growth slowed in the April-June quarter to an annual rate of just 1.7 percent, down from 2 percent in the January- March quarter and 4.1 percent in the final three months of last year.

Many economists expect growth will remain roughly 2 percent in the second half of the year, well short of what is needed to make a significant dent in the unemployment rate.

Stockpiles at the wholesale level account for about 27 percent of total business inventories. Stockpiles held by retailers make up about one-third of the total and manufacturing inventories represent about 40 percent of the total.

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