Forex

WASHINGTON- Business inventories and sales grew in January, but sales unexpectedly grew much faster than inventories causing the inventory to sales ratio to fall back to the record low it hit in November, the Commerce Department reported today.

Business inventories increased 0.8 pct in January, the fastest rate of growth since another 0.8 pct increase in June 2006.

Sales growth in the month was 1.5 pct, the highest rate since March 2007.

The inventory increase was above the expectations of economists surveyed by Thomson's IFR Markets who predicted an increase of 0.5 pct. Business sales were far above expectations of economists, who saw sales falling 0.3 pct in the month.

Retail inventories were up 0.4 pct in January after remaining flat in December. Automakers increased their stocks of unsold cars by 0.4 pct. Retail inventories excluding autos were also up 0.4 pct.

Furniture and building materials, suffering from the housing crunch, saw their supply of unsold goods pile up 0.1 pct and 0.9 pct respectively while their sales fell 0.3 and 0.6 pct.

General merchandisers saw flat sales in the post holiday shopping season while their inventories rise 0.8 pct. Clothing merchandisers saw the largest increase in sales in the month, by 2.2 pct while inventories for that category fell 0.2 pct.

Department stores experienced a 1.6 pct fall in sales and a 0.2 pct increase in inventories.

The inventory to sales ratio for all businesses fell back down to a record low of 1.25 from 1.26 in December.

'While the business inventory-to-sales ratio remains very low (and thus the inventory cycle is likely to play a smaller-than-usual role in any recession-recovery dynamics), the recent build-up in inventories will likely exert a dampening impact on economic activity over the coming few months,' said economists from Bear Stearns.

Manufacturing inventories rose 1.3 pct, the highest level since January 2005. Wholesale inventories rose 0.8 pct. Both data have been reported in earlier releases, but are included in the total business inventories.

'The rises in business inventories in December and January marked the fastest pace of stockpiling since mid-2006, and is consistent with our view that inventories will provide a noticeable boost (adding perhaps more than three quarters of a percentage point) to real GDP growth in the first quarter,' said Michelle Girard of RBS Greenwich capital.

Girard said that if firms can continue to successfully manage their stockpiles 'in the face of slowing demand, a vicious inventory cycle that in the past has tended to exacerbate economic downturns, may be avoided.'