Businesses Gaining Confidence

November 10, 2010

Wall Street Journal

JEFF BATER And LUCA DI LEO

U.S. wholesalers loaded up their shelves in September and a gauge of small-business sentiment ticked upward, both signs that U.S. companies are gaining confidence in the economic recovery.

Wholesale inventories grew 1.5% to a seasonally adjusted $417 billion in September, the Commerce Department said Tuesday, suggesting business confidence in the run-up to the holiday shopping season. August inventories were revised upward, to a 1.2% increase instead of the 0.8% previously reported.

Separately, the small-business optimism index of the National Federation of Independent Business rose 2.7 points to 91.7 in October. The report showed flat employment growth at small firms, but a reversal from the job losses in the September report. The NFIB employment gauge has shown small businesses shedding jobs in all but two quarters since April 2007, the NFIB said.

Also, a Labor Department report showed U.S. job openings slipped in September from August. The data showed 2.9 million job openings on the final business day of September, down from 3.1 million in August. Still, that was more than the 2.6 openings million in September 2009. The data follow a strong jobs report last week that showed nonfarm payrolls grew 151,000 in October.

"Labor conditions have clearly improved," said Theresa Chen, an economist at Barclays Capital.

Wholesalers account for about 30% of business inventories in the U.S., with manufacturers and retailers making up the rest. Growth in wholesale inventories shows companies are feeling better about consumer demand over the next few months and are preparing for rising sales.

Inventory growth has been a strong contributor to the economic recovery of the past year, accounting for nearly three-quarters of the modest 2.0% growth in the third quarter.

That is poised to continue, at least for a few months. The Commerce Department report showed companies have a low level of goods on hand relative to sales, a sign that factories are likely to keep humming. At the current sales pace, wholesalers had enough goods on hand in September to last 1.18 months, up from 1.17 in August but below 1.22 in September 2009.

Dealers of recreational vehicles are one group that is restocking. Thor Industries Inc., which makes recreational vehicles and trailers, reported revenue for the quarter ending Oct. 31 rose 21%.

Tuesday's data on wholesalers showed inventories of durable goods—products meant to last three or more years, such as cars and televisions—rose 0.7% in September. Sales of durables climbed 0.2%.

Inventories of nondurable goods soared 2.8%, with a big jump in farm products. Nondurable sales increased 0.6%.

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