WASHINGTON – Wholesale businesses boosted their stockpiles for a 19th consecutive month in July, but their sales were flat. Faltering demand could force businesses to cut back on orders when the economy is at risk of another recession.
The Commerce Department said Friday that wholesale inventories rose 0.8 percent in July. Sales were unchanged, the poorest showing since a 0.3 percent drop in May.
Weakening sales could shake business confidence and cause them to cut back on their restocking. Still, economists say sales will rebound in coming months as the economy mounts a modest recovery from extremely weak growth in the first half of this year.
In July, the ratio of inventories to sales increased slightly to 1.17 from 1.16 in June. That means it would take 1.17 months to exhaust the current level of stockpiles. That ratio is very close to the record low of 1.13 hit in March.
Leaner stockpiles typically suggest wholesalers will boost factory orders in the months ahead. But that is largely dependent on sales.
The economy expanded at an annual rate of just 0.7 percent in the first six months of the year, the slowest growth since the recession officially ended two years ago. Employers did not add any net new jobs in August. Slower growth and poor hiring have raised concerns that the economy could fall back into a recession.
President Barack Obama on Thursday called on Congress to pass a $447 billion package to boost job growth. The plan includes a deeper Social Security tax cut, an extension of long-term unemployment benefits, and tax cuts for businesses that hire workers that have been unemployed for at least six months, and more spending on schools, roads and other public works.
U.S. manufacturing has been one of the strongest sectors of the economy since the recession ended. Efforts by businesses to restock depleted shelves have fueled much of that factory production.
But factory activity weakened in the spring, in part because of supply chain disruptions caused by the Japan crisis. As a result, U.S. manufacturers have had a difficult time getting component parts, particularly for autos and electronics.
Autos production and sales increased this summer, a sign that those disruptions may be easing.
Still, the Federal Reserve last month said it expects the economy will stay weak for the next two years. As a result, it said it planned to keep interest rates at super-low levels for at least through mid-2013.
The Fed next meets on Sept. 20-21. Federal Reserve Chairman Ben Bernanke said in a speech Thursday that policymakers will consider a range of options to support the economy at that meeting which was expanded from one to two days to provide more discussion time.
Some economists expect the Fed will increase the percentage of long-term Treasury securities it holds as a way to exert further downward pressure on long-term interest rates.