By Rex Nutting, CBS.MarketWatch.com
Aug. 9, 2004

WASHINGTON (CBS.MW) - U.S. wholesalers built up their inventories again in June while sales were flat, the Commerce Department estimated Monday

Wholesale inventories increased 1.1 percent in June after a 1.4 percent rise in May.

Meanwhile, sales at wholesalers were unchanged in June after rising 0.3 percent in May. It was the weakest sales since May 2003.

The inventory-to-sales ratio jumped to 1.15 in June from 1.13 in May and a record low 1.12 in April. It's the highest ratio since February. The typical wholesaler has 35 days worth of sales on hand.

With inventories at record low levels in the spring, some rebuilding of stocks was to be expected. The question now is whether firms believe their stocks are too high in comparison to sales, which would force a decline in new orders. So far, business surveys show no generalized complaint that inventories are too high. Order books are strong.

In June, inventories of durable goods increased 1.4 percent after a 1.9 percent increase in May. Sales of durable goods increased 0.5 percent in June after no change in May. Automotive inventories increased 0.8 percent in June while sales increased 1 percent.

Inventories of nondurable goods increased 0.6 percent in June after a 0.7 percent rise in May. Sales of nondurables fell 0.6 percent in June after a 0.5 percent rise in May. Sales of petroleum fell 1.3 percent.

The figures are adjusted for seasonal factors, but not for price changes.

If sustained, the June figures would indicate that lean inventories are in the process of building back up to desired levels. Rebuilding inventories has been a major factor in the strength of U.S. industrial output and U.S. imports in recent months.

Financial markets rarely pay attention to the wholesale data, but they provide an essential missing piece for economists trying to judge the overall strength of gross domestic product.

The June report shows that more U.S. output was going into inventories rather than into final sales than previously thought.

"The higher-than-expected wholesale inventories should lead, all else equal, to an upward revision to [gross domestic product] of around 0.2 percent," said Steve Stanley, chief economist for RBS Greenwich.

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