US wholesale inventories jumped more than expected in September as demand failed to keep up with production, suggesting output will remain soft as wholesalers try to trim stocks of unsold goods. Inventories surged 1.5 percent, matching a July gain that was the biggest increase in more than two years, the Commerce Department said in a report on Tuesday. Analysts polled by Reuters had been expecting a 0.7 percent increase.
US Treasury securities prices slipped on the report. Owners of small businesses planned to cut inventories and keep workforces trim in October, a separate report showed. Wholesale sales rose a less-than-expected 0.4 percent, according to the government data, raising questions about whether inventories were gathering dust on shelves. Analysts polled by Reuters were expecting a 0.6 percent gain in sales.
The inventory-to-sales ratio, which measures how long it would take to clear shelves at the current sales pace, rose to 1.18 months' worth at September's sales rate, up from 1.17 months in August and the highest in 10 months. Inventories are a key component of gross domestic product changes over a business cycle, and rebuilding of merchandise stock from record low levels has been a key driver of the economy's recovery from the worst recession since the 1930s. Inventory building contributed 1.4 percentage points to the economy's annualised 2 percent growth in the third quarter.
Despite an uptick in small business optimism, owners remained braced for a sluggish economy, a National Federation of Independent Business report showed. The NFIB said its small business index for last month rose 2.7 points to 91.7, the third straight monthly rise.