July 9, 2004

By Deborah Lagomarsino
Dow Jones Newswires

WASHINGTON -- U.S. wholesale inventories rose sharply in May as stocks of durable goods posted their biggest gain in four-and-a-half years.

Wholesale inventories rose 1.2% to a seasonally adjusted $305.51 billion, the Commerce Department said Friday. April inventories were revised to show a 0.2% increase, previously reported down 0.1%.

The increase in May wholesale inventories was more than double what Wall Street economists had expected. Analysts had predicted a 0.5% gain.

The report showed wholesale sales rose 0.5% in May to a seasonally adjusted $270.4 billion. That followed a revised 0.9% gain in April. Sales for that month were previously estimated as rising 0.8%.

The inventory-to-sales ratio edged up to 1.13 in May from April's record-low of 1.12. The ratio measures how many months it would take for a firm to exhaust its current inventory. It has dropped steadily during the last year; in May 2003, the gauge stood at 1.24. Year over year, wholesale inventories were up by 5.6% in May, while sales were up 16.1% from a year ago.

While companies have been steadily boosting inventories amid an expanding economy, surging demand has, in turn, cleared shelves. Analysts expect firms to keep ramping up inventories this year to keep up with increasing demand.

Inventories of durable goods -- meant to last three or more years -- rose 1.5% in May, their biggest increase since November 1999, while sales edged up 0.1%. The rise in durable-goods inventories was led by big increases in stocks of metals, lumber, hardware and autos. Lumber inventories rose 6.4%, followed closely by a 5.6% rise in inventories of metals. Hardware inventories rose 2.3% and inventories of autos rose 1.1%.

Inventories of nondurable goods rose by 0.6%, while sales rose 0.9%. Within that category, inventories of miscellaneous nondurable goods rose by 1.9% and petroleum inventories rose 1.7%. Drug stocks rose 1.6%. Inventories of farm products fell by 3.4%.

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