US Business Inventories Expand On Auto Dealer Restocking

Business inventories rose more than expected in January, increasing 0.7 percent from the previous month to a record level, as auto dealers replenished their stocks to keep pace with rising consumer demand.

The U.S. Department of Commerce said Tuesday that business inventories in January climbed to a record $1.57 trillion. That continues the trend, as inventories had increased 0.6 percent in December.

According to a survey of economists polled by Reuters, expectations generally fell along the lines of a 0.5 percent increase in January. Economists polled by Bloomberg News also expected a 0.5 percent gain.

Compared to the year-earlier month, January's business inventory level was up 7.6 percent.

In a separate report on Tuesday, the Commerce Department said that sales at U.S. retailers had increased in February at their highest levels in five months. Retail sales in February rose 1.1 percent, beating economists' projections of a 1 percent gain.

Both reports were helped by strong results in the U.S. auto industry, which is on pace for its highest yearly sales output since the beginning of the economic downturn. After about 12.8 million auto sales in 2011, analysts projected sales in 2012 to reach 13.8 million. But two stronger than expected months -- including a 6.4 percent rise in February -- have led many analysts to revise their projections to above the benchmark 14 million sales level. At a seasonally adjusted rate, February new car sales ended on pace for sales of 15.1 million.

In January, auto inventories jumped by 2.6 percent, the Commerce Department said, reflecting the tide of pent-up demand for consumers in the first two months of 2012. Auto inventories only rose 0.6 percent in December.

There's a rising tide of excellent buying conditions right now that is really driving auto sales momentum, said Jessica Caldwell, a senior analyst at Edmunds.com. Things seem to be breaking the right way for both car buyers and dealers.

Business inventories are an important measure of fluctuations in gross domestic product. Increased inventory at the end of last year pushed the U.S.'s fourth-quarter GDP up a 3 percent annual rate.

At business' current sales pace, they had stocked enough to last 1.27 months. That's the same level as December. Inventory-to-sales ratios were stable, which suggests that inventory levels remain in good balance, Scott Anderson and Michael Brown, economists at Wells Fargo, wrote in a note to investors.

Inventories at retailers also grew at a strong rate of 1.1 percent in January. That's the biggest increase since June 2010.