U.S. business inventories rose a seasonally adjusted 0.8% in October as sales increased 0.7%; buildup of inventories seen as sign economy could grow modestly in final months of the year

Cindy Allen

WASHINGTON , December 13, 2011 (Associated Press) – U.S. businesses increased their stockpiles in October after slowing inventory growth in the previous month. The buildup in inventories should help the economy grow modestly in the final months of the year.

The Commerce Department said Tuesday that business inventories rose a seasonally adjusted 0.8 percent. Sales increased 0.7 percent, the fifth straight gain.

In September, businesses didn't increase their stockpiles for the first after 20 months of gains. Many had worried that consumer demand would fall after the little growth in the first half of the year.

Yet the economy grew at an annual rate of 2 percent over the summer, even after companies cut their inventories. The key reason for the growth was consumers — their spending grew at triple the rate from the spring.

With depleted stockpiles and higher demand, economists expect a modest rebound in inventory growth in the final three months of the year. Last week the Commerce Department said wholesale inventories grew in October by the most since May. Manufacturing inventories also rose for that month.

Tuesday's inventory report includes stockpile growth at the manufacturing, wholesale and retail levels.

When companies build up their inventories, it usually signals that they expect more sales. And the extra factory production needed to increase stockpiles boosts economic output.

Rising inventories are a big reason economists expect growth will improve in the fourth quarter. Most expect the economy to expand by an annual rate of about 3 percent, up from 2 percent in the July-September quarter.

But the U.S. economy is vulnerable to shocks from overseas. European leaders are struggling to contain a two-year old debt crisis and the 17 nations that use the euro may already be in recession, economists say. A recession in Europe could slow U.S. exports and reduce growth next year.

During the Great Recession, businesses cut back inventories in the face of plunging demand. The restocking that has occurred over the past two years has been a major support for the economy as factories have increased production to meet rising orders.

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