WASHINGTON (AP) – Wary about customers, businesses are likely to continue showing caution when it comes to building up stocks of goods, economists say.
A report Monday from the Commerce Department highlighted one of the big challenges facing businesses during these muddled economic times: trying to gauge consumers’ demand for their products.
Business’ stockpiles of unsold goods rose by 0.6 percent in February as sales tumbled by 1 percent, the biggest decline since November 2001. The appetite of consumers and businesses to spend was chilled by prewar jitters and harsh winter weather, economists said.
“February was a horrible month,” said Clifford Waldman, economist with Manufacturers Alliance/MAPI, a research group.
In January, however, businesses – taking a bet that there would be ample appetite for their goods – boosted inventories by 0.3 percent and sales jumped by 1.3 percent.
The Business Roundtable, an advocacy group of chief executive officers from some of the largest U.S. companies, in a survey last week found that consumers’ uneven appetites for spending is among their top concerns.
Last week the government reported that retail sales rose in March by the largest amount in 17 months as consumers snapped out of a funk and splurged on cars, garden supplies and furniture.
Another report last week showed that consumers’ confidence in the economy improved in April. Both reports raised hopes that consumers will keep their wallets and pocketbooks sufficiently open to prevent an economic slide into recession.
But even with that encouraging news, economists predicted businesses won’t truly bulk up inventories until they feel more secure that there will be a steady appetite for their goods.
“I think businesses will add cautiously to inventories, but they won’t make a full commitment unless they see demand really picking up,” said Richard Yamarone, economist with Argus Research Corp.
On Wall Street, stocks rose amid light trading. The Dow Jones industrial average gained 147.69 points to close at 8,351.10.
Even with their ups and downs, consumers have been the main force keeping the economy going.
Profit-pressed businesses and battered manufacturers, meanwhile, have been reluctant to make big investments in capital projects or in hiring, a major factor holding back the economic recovery. Turning that situation around may take time, even with a swift military victory in Iraq, some economists said.
“You’re not going to have a big investment in inventories until the profit picture turns around,” said Waldman. Many merchants are heavily discounting merchandise and offering other incentives, which may bolster sales but isn’t helping businesses’ bottom lines, Waldman said.
Fed Chairman Alan Greenspan and his colleagues are hopeful that once the Iraq war is over, the economy will get back on surer footing.
Fed policy-makers in March decided to keep interest rates at a 41-year low of 1.25 percent, a sufficiently low level to help energize the listless economy, they said. Some economists believe the Fed probably will keep rates that low for a while.
With the war appearing to wind down, economists’ focus is back on trying to get a feel for the economy’s true fundamentals. That picture has been blurred by the uncertainties of war.
In Monday’s report, inventories at factories rose 0.4 percent in February as sales slid by 1.5 percent.
Retailers saw inventories go up by 0.9 percent in February, the largest increase since September 2002, as sales dropped by 1.5 percent. At wholesalers, inventories rose 0.3 percent and sales increased by 0.5 percent.
Since falling into recession in 2001, the economy has been struggling to back fall to full throttle. A quarter of strength has been followed by three months of weakness, an environment that has made it difficult for companies to make big financial commitments.
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AP-ES-04-14-03 1703EDT
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