Business inventories up 0.6 percent in August

Businesses increased their inventories for an eighth consecutive month in August even though overall sales slowed significantly.

Business inventories rose 0.6 percent in August after a 1.1 percent rise in July, the Commerce Department reported Friday. Total business sales were up a slight 0.1 percent following a much stronger 0.8 percent advance in July.

The continued strong gains in inventories are seen as an encouraging sign that the economic recovery will continue. Inventory rebuilding has provided critical support as the economy struggles to emerge from a deep recession. Increased orders to fill empty store shelves have translated into higher production at the nation's factories.

Many businesses had undertaken a massive liquidation of inventories in early 2009 as they struggled to cope with a deep recession and plunging demand by keeping costs under control.

However, the swing from slashing inventories to rebuilding stockpiles was a big factor in overall economic growth in the final quarter of last year and the first part of this year.

For August, the biggest increase in inventories occurred at the retail sector, where stockpiles rose by 1 percent followed by a gain of 0.8 percent in inventories held by wholesalers. Manufacturing inventories edged up a slight 0.1 percent.

Sales in August were held back by a decline of 0.6 percent in sales by manufacturers. Retail sales rose 0.7 percent in August and were up 0.5 at the wholesale level. A separate report Friday showed that retail sales posted another solid gain in September, rising by 0.6 percent.

Chief Commerce Department economist Mark Doms said in an interview that the rise in retail sales in September was encouraging, but he said stronger job growth will be key to supporting further gains in spending in coming months.

"After slowing for a couple of months earlier in the summer, it looks like retail sales growth has come back," Doms said in an interview. "But we can't get increasingly robust consumer spending until we get stronger job growth."