Wholesale Inventories Increase

By JEFF BATER and LUCA DI LEO Inventories of U.S. wholesalers unexpectedly increased in October, breaking a string of 13 declines and suggesting production will pick up. Wholesale inventories rose 0.3%, the Commerce Department said Wednesday. The mild increase came even with strong demand, indicating optimism among distributors over the economic recovery. Sales of U.S. wholesalers climbed in October by 1.2% to a seasonally adjusted $326.17 billion, the seventh straight increase. The 0.3% increase in inventories was the first since a 0.7% rise in August 2008. Economists surveyed by Dow Jones Newswires expected a 0.6% drop in October wholesale inventories. Companies have slashed inventories furiously all year, trying to clean out warehouses laden with unsold goods that piled up in the severe recession. A drop in inventory drawdown in the third quarter gave a boost to an economy that grew for the first time after four quarters of contraction. The amount of wholesale goods on hand relative to sales dipped during October. The inventory-to-sales ratio measures how many months it would take for a firm to deplete its current inventory. The ratio fell to 1.16 from 1.17 in September. It was 1.22 in October 2008. U.S. wholesale inventories had contracted 13 consecutive months. Inventories in September fell 0.8%, revised from a previously reported 0.9% decline. Sales in September rose 1.3% instead of the originally reported 0.7%. On a year-over-year basis in October, sales were 9.6% lower, while inventories were down 13.5% since October 2008. The surprise increase in October inventories suggests companies will begin stockpiling again and that will boost orders and production, for things like cars. Ford Motor Co. said last week it is raising production to 555,000 vehicles in the first quarter of 2010, up 58% from a year earlier to replenish inventories. Wednesday's data showed the value of goods on hand at distributors stood at $379.59 billion in October. Wholesalers' inventories of durable goods -- meant to last three or more years -- decreased 0.4% in October, after decreasing 1.0% in September. Automotive stocks, though, rose 1.7% after being flat in September. Inventories of metals fell 1.5%. Durable goods sales rose by 0.8% in October, after rising 1.3%. Auto sales in October jumped 3.3%. Non-durable goods inventories increased 1.5% in October. Petroleum was up 4.6% and farm products surged 11.4%. October non-durable goods sales increased by 1.6%. Write to Jeff Bater at jeff.bater@dowjones.com and Luca Di Leo at luca.dileo@dowjones.com