/www.bloomberg.com/ By Siobhan Hughes
Washington, Oct. 15 (Bloomberg) -- Inventories at U.S. factories, wholesalers and stores unexpectedly declined in August as companies kept stockpiles lean out of concern the economic recovery is flagging.
``Businesses by and large are not optimistic about the strength of demand and so don't want to be caught with too much inventory,'' said Kevin Logan, chief market economist at Dresdner Kleinwort Wasserstein Securities LLC in New York.
The 0.1 percent drop in stockpiles of unsold goods was the first since April and followed a 0.4 percent increase in July, the Commerce Department said. Sales increased, pushing down the ratio of inventories to sales to a record low of 1.34 months' worth from 1.35 in July. The figure is a gauge of the time goods sit on store shelves.
Parker Hannifin Corp., the world's largest maker of hydraulic equipment, has noticed such caution among its customers that make construction and agricultural equipment and heavy-duty truck engines. Some of them are planning to cut inventories by closing plants longer than normal in the fourth quarter, said Treasurer Timothy Pistell.
Some economists are paring estimates of third-quarter growth based on today's report, which suggests that inventory stockpiling provided less support to the economy than expected. The August drop in inventories may have subtracted a quarter- to a half- percentage point from growth, said Jade Zelnik, chief economist at RBS Greenwich Capital Markets in Greenwich, Connecticut.
Growth Rates
Before the report, economists in the latest Blue Chip Economic Indicators survey had estimated the economy grew at a 3.6 percent annual rate from July through September.
Economists had expected a 0.2 percent increase in August inventories, based on the median of 51 forecasts in a Bloomberg News survey. Stockpiles totaled $1.124 trillion for the month.
Economic growth this year has depended on consumer spending. Americans have been willing to buy cars using zero-interest loans, while shunning clothing and other merchandise offered at full price. That has kept retailers from stocking up on such goods.
Retail inventories, which account for about one-fourth of business stockpiles, fell 0.3 percent in August after rising 0.8 percent in July. Retail sales rose 0.6 percent after increasing 1.4 percent, led by a surge in demand for automobiles.
Auto Inventories
At auto dealers, inventories fell 0.5 percent. At department stores, inventories fell 0.3 percent in August as sales declined. At building materials stores, inventories rose 0.1 percent after falling 0.2 percent.
In August, cars sold at an 18.7 million-vehicle annual rate, the most this year, as zero-interest loans drew shoppers. Sales climbed 18 percent at General Motors, the world's biggest automaker, 12 percent at No. 2 Ford Motor Co. and 24 percent at DaimlerChrysler AG's Chrysler unit, the third-largest U.S. automaker. Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. all had gains of more than 12 percent.
General Motors in September raised its fourth-quarter production plan to 1.285 million vehicles, 7.3 percent more than a year earlier. The company's dealers had about 300,000 of its 2002 models in inventory at the end of August, compared with a supply of 450,000 a year earlier.
There are limits to inventory-cutting. Charming Shoppes Inc., owner of Lane Bryant and Fashion Bug clothing stores, said sales at stores open at least a year were 6 percent lower in September than a year earlier, partly because it ran short of some items.
Factory Inventories
Stockpiles at manufacturers, which account for almost half the report, failed to rise in August after falling 0.1 percent the month before. Sales fell 0.6 percent after rising 1.6 percent in July.
In other categories, wholesale inventories, which make up about one-fourth of the business inventories report, rose 0.2 percent in August after increasing 0.6 percent in July. Sales rose 0.9 percent after increasing 0.7 percent a month earlier.
The low level of inventories in the month leading up to a 10- day shutdown of U.S. West Coast ports forced companies such as Honda Motor Co. to halt production because of parts shortages. Toyota Motor Corp. and Gap Inc. said that October sales would be hurt because of delays in getting merchandise into stores.
The level of inventories ``wasn't as great as some people had thought, which may have meant that companies were a little more exposed'' to the labor dispute that led to the port shutdown, said Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis.
The shutdown ended last Tuesday, when President George W. Bush used the 1947 Taft-Hartley Act to open 29 ports before the holiday shopping season.