U.S. businesses boosted their stockpiles in June by the largest amount in more than two years.
Businesses increased their stockpiles by 0.8 per cent in June, the biggest increase since January 2013, the Commerce Department reported Thursday.
Economists are hoping that strong gains in employment over the past year will help boost consumer spending in the months ahead, encouraging businesses to keep building their inventories. If consumer demand doesn't rise, businesses could start cutting back on restocking, which would be a drag on the economy
Sales rose a modest 0.2 per cent. After seven months of declines, sales have now risen for four straight months. In a separate report Thursday, the government said that retail sales posted a solid gain of 0.6 per cent in June.
The overall economy grew at an annual rate of 2.3 per cent in the April-June quarter after meagre growth of 0.6 per cent in the first quarter. On the basis of the strong inventories jump in June, many economists revised up their estimate for second quarter growth.
Analysts at JPMorgan boosted their estimate for second quarter growth to 3.4 per cent, up from a previous 3.2 per cent.
While higher inventories could mean less economic growth in the future, JPMorgan analysts said they were keeping their third quarter growth estimate unchanged at 2.5 per cent for now. But analysts at Wells Fargo said in a research note that "a slower pace of inventory accumulation in the second half could become a significant headwind" for the economy.
The stockpile report covers inventories held by manufacturers, wholesalers and retailers.
The June expansion left the ratio of inventories to sales at 1.37, meaning it would take 1.37 months for stockpiles to be depleted at the June sales pace. That is the highest level for inventories since June 2009, the month the Great Recession ended.
Economists are forecasting growth will be supported in the second half of this year by further strong employment gains which will give consumers more incentive to increase spending.
This content appears as provided to The Globe by the originating wire service. It has not been edited by Globe staff.