US wholesale stockpiles and sales rise sharply in October, encouraging signs for Q4 growth

WASHINGTON – U.S. wholesale businesses boosted their stockpiles in October by the most in two years as their sales rose sharply, encouraging signs for economic growth in the final three months of the year.

Wholesale stockpiles grew 1.4 per cent in October, the Commerce Department reported Tuesday. That’s nearly triple the 0.5 per cent gain in September and the biggest monthly gain since October 2011. Sales at the wholesale level increased 1 per cent in October, the most in five months. Sales rose 0.8 per cent in September.

Rising stockpiles boost growth because it means factories have produced more goods. Robust restocking drove roughly half of the 3.6 per cent annualized economic growth in the July-September quarter.

Some economists had predicted that growth would slow in the October-December quarter to an annual rate of 2 per cent or less as companies reduced their inventory building in response to slowing demand. But the strong rise in October suggests businesses expect to see solid sales in the coming months.

The gain could prompt some to rethink their forecasts. But if sales falter, companies could be left with large stockpiles of unwanted goods. That could ultimately slow restocking and weigh on overall growth, if not in the fourth quarter than at the start of next year.

Pierre Ellis, an economist at Decision Economics, said that he expects overall growth will slow as businesses cut back on restocking. But that may not happen until the first quarter of next year.

The October increase pushed wholesale stockpiles up to a seasonally adjusted $514.1 billion. That’s 3.3 per cent higher than the same month last year.

In October, stockpiles held by auto dealers surged 2.7 per cent. Automakers reported solid sales in November and are on pace for their best sales year in almost seven years.

Economists are hopeful that growth will rebound next year, helped by a pickup in hiring, gradually improving wages and rising household wealth.

The National Association for Business Economics said in a forecast released Monday that the economy should grow 2.5 per cent in 2014, up from what the NABE forecast of 1.7 per cent growth this year.

The business economists are more optimistic about next year even though they expect the Federal Reserve will begin to reduce its $85 billion per month in bond purchases. The bond purchases are intended to lower long-term interest rates and encourage more borrowing and spending.

But economists believe even if long-term rates start to rise a bit, the economy will be getting support from steady gains in employment.