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U.S. Wholesale Inventories Rose 1.2% in May; Sales Up 0.5%

July 9 (Bloomberg) -- U.S. wholesale inventories rose 1.2 percent in May, more than forecast and the ninth straight increase, as companies kept more goods on hand to satisfy demand.

The increase reflected more imported autos, machinery and electrical equipment and brought the value of stocks to $305.5 billion after a 0.2 percent rise in April, the Commerce Department said in Washington. Sales increased 0.5 percent in May following a 0.9 percent rise.

Wholesalers had enough supply to last 1.13 months at the current sales pace after stockpiles dropped to a record low in April. The need to build inventories may contribute to economic growth for the rest of the year, according to Cary Leahey and other economists.

``Inventories are likely to be the upside surprise this year,'' said Leahey, a senior economist at Deutsche Securities Inc. in New York, before the report. ``There comes a point in time when businesses feel confident enough to rebuild inventories and that time has come.''

Economists had expected wholesale inventories to rise 0.5 percent, according to the median of 38 forecasts in a Bloomberg News survey. They had also expected sales to increase by 0.7 percent.

Wholesalers account for about one-fourth of all business inventories. Retailers and factories make up the rest. The Commerce Department reported last week that factory inventories rose 0.5 percent for a second month in May.

Retail inventory statistics will be available next week, when the government releases its report on all business stockpiles.

Durable Goods

Inventories of durable goods at wholesalers, which include cars, machinery and appliances, rose 1.5 percent in May, the biggest increase since November 1999, after rising 0.4 percent the previous month. Sales rose 0.1 percent after increasing 1.5 percent.

The value of inventories of non-durable goods rose 0.6 percent, led by petroleum and drugs, after no change in April. Sales of non-durable goods increased 0.9 percent after rising 0.4 percent.

Companies probably added some $38 billion in inventories at an annual pace last quarter, according to a forecast by Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado. The economy probably grew 4.2 percent during the three- month period, with inventories accounting for 1.5 percentage points of the increase, according to his projections.

Inventory restocking contributed 0.7 percentage point to growth in the first three months of the year when the economy expanded at a 3.9 percent annual rate, according to government figures.

General Electric

``Orders continue to be strong,'' Jeff Immelt, chief executive officer at General Electric Co., in a press release issued by Business Wire today. ``This is the best economy we've seen in years.''

Profit at the world's largest company by market value rose 3.4 percent in the second quarter partly because of increased demand for industrial goods such as jet-engine parts and plastics. Sales increased 11 percent during the quarter.

Some companies such as Nu Horizons Electronic Corp., a distributor of computer memory chips and other electronics components, are replenishing inventories after a rise in sales.

``Sales have increased quite a bit,'' Paul Durando, chief financial officer of Nu Horizons, said in a conference call with investors last week. ``We are actually really playing a little catch up'' with inventories. ``You can't sell if you don't have the goods.''

Other Statistics

The Melville, New York-based company said last week that sales in the quarter ended May 31 rose 16 percent compared with the previous three months while the value of inventories jumped 45 percent to $99.6 million. Sales were 62 percent higher compared with the same period last year.

In June, more factories added inventories than reduced them, according to a report last week from the Institute for Supply Management. It was the first time since January 2000 that the group's data showed more were adding to stockpiles than reducing them.

A similar inventory index for companies in service industries, which comprise the biggest part of the economy, rose last month to the highest since record keeping began in July 1997, the institute's companion report showed Tuesday.





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