Business Inventories Jump in June

W A S H I N G T O N, Aug. 14 -- U.S. business inventoriespiled up at a stronger-than-expected pace in June, thegovernment said today in a report giving the Federal Reservemore breathing room to hold interest rates steady when it meetsnext week.

Led by a strong gain in durable goods stocks, the value ofinventories held by manufacturers, wholesalers and retailersrose 0.9 percent to a seasonally adjusted $1.192 trillion aftera 0.9 percent gain in May, the Commerce Department said. Thegain in the value of goods on hand in June exceeded the 0.5percent pickup forecast by Wall Street economists.

Stocks of durable goods, items such as refrigerators andwashing machines, rose 1.0 percent, the strongest gain sinceMarch 1995.

A rise in inventories can indicate either a weakening indemand that leaves goods to pile up on producers’ shelves, orstockpiling by businesses in anticipation of more vigorous salesahead.

What’s Next?Economists said the reason for an inventory buildup wasnever clear, but added that the big jump in June — the 18thstraight monthly increase in inventories — could translate intoa decline in growth in the third quarter as firms slow downproduction to unload their huge stocks.

U.S. gross domestic product grew at a hefty annual rate of5.2 percent during the April-June period, up from a 4.8 percentpace in the first three months of the year.

“I think it is the case that the strong June inventoryfigure will be followed by weaker numbers in the third quarteras retailers try to get stocks in balance,” R. H. Wrightson andAssociates chief economist Lou Crandall said.

Some economists said the outlook for declining GDP wouldtilt the U.S. central bank’s scale even further in the directionof leaving interest rates unchanged when it holds its interestrate-setting meeting in eight days.

“It becomes yet another factor for the Fed to hold off onany other rate changes,” State Street Corp. chief economistFred Breimyer said.