http://dailynews.yahoo.com/h/nm/20000111/ts/economy_leadall_1.html

-- Linkmeister (link@librarian.edu), January 11, 2000

Answers

Tuesday January 11 1:15 PM ET

U.S. Inventories Up, Seen Boosting GDP

By Mark Egan

WASHINGTON (Reuters) - U.S. wholesalers built up inventories at a faster-than expected pace in November in case of millennium computer problems, a further indication of the strong U.S. economy steaming ahead at the end of last year.

The Commerce Department said that inventories held by U.S. wholesalers rose 1.1 percent to a seasonally adjusted $302.95 billion after a 0.4 percent gain in October.

November's gains were the largest since a matching 1.1 percent gain in February 1998 and were far greater than the 0.5 percent rise forecast by economists in a Reuters poll.

Economists had expected many businesses to build up inventories modestly in the final months of 1999 as an insurance against higher demand or other problems related to the so-called Y2K computer bug.

November's gains were much stronger than expected, and economists said should inventories continued to build in December, fourth quarter Gross Domestic Product could have grown even faster than the already robust pace most expect.

``The gain in inventories for the quarter may now be somewhat higher than expected and that could easily push GDP above 5 percent,'' said Joel Naroff, an economic consultant in Philadelphia.

With the economy within weeks of setting a record 107-month expansion, most economists expect the Federal Reserve to raise interest rates when it next meets to set monetary policy on Feb. 1-2, to ensure the economy does not overheat.

The report helped push the benchmark 30-year U.S. Treasury bond lower, sending its yield higher to 6.66 percent. It was already weak in advance of the data after comments late Monday from the president of the Federal Reserve Bank of Richmond, Alfred Broaddus, who said the risk that the economy might overheat was rising.

The report said that, while inventories rose, sales were also strong. Sales by U.S. wholesalers grew at a faster pace in November, helped by strong sales of electrical goods, clothing and drugs.

Commerce said sales at the wholesale level rose 1.6 percent in November to a seasonally adjusted $236.81 billion, up from a gain of 0.8 percent in October.

Indeed sales were so strong that the stock-to-sales ratio, a measure of how long it would take to fully deplete stocks at the current sales pace, dipped to 1.28 months compared to 1.29 months in October.

David Sloan, senior economist at 4Cast Ltd., said the strength of November's sales suggested that the buildup in inventories was driven more by demand than Y2K fears, and so is likely to continue in the coming months.

``This suggests inventories will be a positive contribution to fourth quarter GDP and I think this inventory growth will continue in the first quarter,'' Sloan said.

Sloan said that with fourth quarter GDP expected to be about 4.5 percent, and possibly higher, ``there are few people who believe GDP can sustain that sort of pace without at least some inflationary risk, so (GDP) will be encouraging the Fed to raise rates.''

Fourth quarter GDP estimates will be released just days in advance of the Fed's next meeting.

Sales of durable goods, big-ticket items intended to last three years or more, rose a strong 1.5 percent in November while sales of nondurable goods rose 1.7 percent.

In a separate report, U.S. adjusted retail sales in the first week of January 2000 rose 1.9 percent compared with December, according to LJR Redbook.

The report noted that the strong sales contradicted forecasts of a slump in sales after ``the burst of millennium-inspired shopping'' in the closing days of December.

Department stores posted strong relative sales gains in the first week of January, as shoppers enjoyed the sales -- a trend expected to continue through the end of the month.

Both Naroff and Sloan agreed that the Redbook report suggested that the new year was off to a positive note for retailers.

Another set of data bound to weigh on Fed policymakers, the Richmond Fed's manufacturing activity report for December, showed wage pressures were building in the economy.

``Wages are now creeping up. Certainly expectations, especially in manufacturing, are for relatively sharp wage hikes going forward,'' Raymond Owens, Richmond Fed economist said in an interview on Reuters Television.

The report also suggested manufacturers had begun to pass on higher input prices to their customers.

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-- Linkmeister (link@librarian.edu), January 11, 2000.

U.S. wholesalers built up inventories at a faster-than expected pace in November in case of millennium computer problems, a further indication of the strong U.S. economy steaming ahead at the end of last year...

I freely admit to being ignorant of economics, but how does the conclusion ("...a further indication of the strong U.S. economy steaming ahead...") follow from the premise ("...built up inventories ... in case of millennium computer problems..." [italics mine])???

-- I'm Here, I'm There (I'm Everywhere@so.beware), January 11, 2000.

I'm Here, I'm with you, buddy. I certainly don't see that this build- up due to Y2K worries indicates a positive! In fact, if unmatched by sales, it can be the same kind of negative that drives companies to maintain just-in-time inventory levels.

-- Mara (MaraWayne@aol.com), January 11, 2000.

We manufacture systems in the 15-30K price range. We were amazed at the serious inquiries and actual orders that we recieved in December. And we made sure we had enough inventory to meet those orders. It was a risk but it looks like it will work out. If we had had a TEOTWAWKI it wouldn't have made a darn bit of difference one way or the other.

-- Pam Goodrich (jpjgood@penn.com), January 11, 2000.

Really having to s-t-r-e-t-c-h for that bad news now, huh Kev?

Mixing music must be slow right now...or is music just not y2k kompliant?

sad how the millenium cults have to rely on this sort of "spin"....isn't it the same thing they accused the evil PTB of doing for the last two-three years?

-- must be (tuff@after.all.this.time), January 11, 2000.

I'm here,

This article was more upfront about the drawbacks of pre-rollover stockpiling:

http://biz.yahoo.com/rf/000111/y9.html

[snip]

Millennium preparations -- stocking up for celebrating the new year and gearing up for Year 2000 computer glitches -- may have helped hitch up the ex-auto number, although analysts said it will be hard to pinpoint by how much.

``There could be Y2K related effect but we'll never know except if we see softer figures in January, February and March, people will wonder whether there was Y2K spending in December,'' Glassman said. ``There was a lot of hype, but it's hard to say what people bought.''

[snip]

-- Linkmeister (link@librarian.edu), January 12, 2000.