Businesses boost inventories as sales slow

WASHINGTON — U.S. businesses restocked their shelves and warehouses at a faster pace in December, but sales slowed, a cautionary sign for the economy.

The Commerce Department said Thursday that inventories rose 0.5% after a 0.4% increase in November. Sales growth fell to just 0.1%, from 0.7% in November.

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The figures point to a risk for the economy: if companies build their stockpiles at a faster pace than their sales are growing, they may end up stuck with more goods than they need.

That would force them to cut prices sharply and sell at discounts in order to clear the extra inventory. Businesses would also likely order fewer goods, weighing on factory production.

Retailers' stockpiles rose 0.6%, while their sales were flat in December, the report said. Manufacturers and wholesalers increased their inventories by a smaller amount. Manufacturers' sales fell, while wholesalers' sales rose at a slower pace than in November.

A separate report Thursday showed that retail sales fell 0.4% in January as extremely cold weather kept shoppers at home. Auto sales fell sharply.

The decline in January retail sales suggests that companies will need to reduce their stockpiles in the first few months of this year. That's likely to slow economic growth in the January-March quarter.

Rising inventories helped boost growth in the second half of last year. A big increase in stockpiles during the July-September quarter contributed two-fifths of that period's surprisingly robust 4.1% annual growth rate. Rising inventories contributed another 0.4 percentage point to the October-December quarter's 3.2% growth.

But slower restocking will likely slow growth in the January-March quarter to about 2% to 2.5%, economists forecast.