Business Inventory Rise May Slow U.S. Recovery

By John S. McClenahen UBS Warburg LLC couldn't have put it any plainer: "The inventory rises at the factory level and the non-auto retail level spell further cutbacks in orders to manufacturers in the next few months." Business inventories in January rose four-tenths of a percentage point, more than most economists expected. The rate of inventory increase in manufacturing was 0.7% and 0.4% for non-auto retail. "Companies are having a difficult time drawing down inventories because of weak sales," states Karen Dexter, an economist with Merrill Lynch & Co., New York. The ratio of inventories to sales is now 1.37, compared with the 50-year low of 1.31 recorded in March 2000. The new numbers, reported Mar. 14 by the U.S. Commerce Dept., are causing UBS Warburg to rethink its first- and second-quarter GDP growth forecasts. The -0.3% inflation-adjusted rate it projected for the current quarter "may be a tad low" and the 1.5% GDP growth rate for April through June "could be too high."

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