WASHINGTON – America's businesses — keeping a close eye on economy's pulse — boosted their stockpiles by a modest 0.3 percent in November, a sign that companies are betting the rebound will be lasting.
The increase in inventories reported by the Commerce Department (search) Friday came as business sales went up by 0.5 percent, suggesting that companies saw demand for their products as shoppers got ready for the holiday season.
The 0.3 percent boost in inventories was slightly stronger than the 0.2 percent rise that economists were forecasting.
In October, inventories rose by a solid 0.4 percent, while sales increased by a brisk 0.7 percent.
Inventory building can be a sign that businesses are feeling more confident that the economic recovery is genuine. Importantly, though, the process adds to economic growth, as measured by the gross domestic product (search).
GDP measures the value of all goods and services produced within the United States and is the broadest measure of the economy's health. Big cutbacks by companies in their inventories was a key factor in the economy's slump.
After a long bout of a lackluster activity, the economy shifted into a higher gear in the second half of last year.
With the economy improving, analysts are hopeful businesses will feel even better about prospects and will ramp up inventories and hiring. Businesses still have been reluctant to go on a major hiring spree, which has been a sore spot not only for jobseekers but also for the economy itself.
In December, the economy added a paltry 1,000 jobs, disappointing analysts. The nation's unemployment rate dropped to 5.7 percent but that was mainly due to thousands of potential workers who gave up looking for jobs.
The Federal Reserve (search) meets Jan. 27-28 to discuss interest-rate policy in the United States. Economists expect policy-makers will keep rate at 1 percent, a 45-year low.
Some economists believe rates will stay at such super-low levels for the rest of the year and into 2005. Others, however, believe the Fed could start pushing rates up later this year.
With inflation low, the Fed has leeway to keep rates near rockbottom levels for some time in an effort to help the labor market heal, economists say.
By keeping short-term rates low, businesses and consumers might be motivated to spend and invest more, forces which would lift economic growth.
The economy grew at a blistering 8.2 percent rate in the third quarter of 2003 — the strongest performance in nearly two decades. Analysts believe the economy expanded at a rate of around 4 percent to 5 percent in the final quarter of last year, saying such breakneck growth seen in the third quarter couldn't be sustained.