U.S. businesses increased their stockpiles in September, further evidence that economic growth was stronger over the summer than first thought.
The Commerce Department said Wednesday that inventories grew 0.7 percent in September, after a 0.6 percent increase in August.
Retailers, manufacturers and wholesale distributors all boosted their stockpiles. Their sales rose 1.4 percent in September— the most in more than a year.
Companies typically increase their stockpiles when they anticipate sales will rise in coming months. Faster restocking helps drive economic growth. When businesses order more goods, it usually leads to more factory production.
Still, a separate report Wednesday showed that retail sales dropped in October. That suggests companies will have to cut back on rebuilding their stockpiles in the final three months of this year, which could slow growth.
Economists think Superstorm Sandy likely depressed sales at the end of last month by closing stores and cutting off power. Online and catalog sales dropped sharply.
Prior to the storm, companies appeared optimistic about sales. They added to their stockpiles in September at a faster pace than the government projected. That could lead the government to sharply revise its estimate of the economy's growth rate in the July-September quarter up from the 2 percent annual rate it reported last month.
Economists at Barclays Capital have boosted their estimate for third-quarter growth to an annual rate of 2.9 percent, partly because of stronger inventory gains.
Several other Wall Street firms also raised their projections last week after seeing faster restocking at the wholesale level and a report that the U.S. trade deficit narrowed because exports rose in September to a record high.
The inventory and trade data from the Commerce Department weren't included in the government's initial estimate of growth, released Oct. 26.
Wholesale stockpiles account for about 27 percent of total business inventories. Stockpiles held by retailers make up about one-third of the total and manufacturing inventories represent about 40 percent.
While growth this summer has improved, economists are still wary about the final three months of this year. Many are worried that companies will hold back on hiring and investment because of the "fiscal cliff," the package of tax increases and spending cuts slated to take effect early next year. Unless Congress and the White House agree to delay or replace the cliff, it could push the economy into recession in the first half of next year.
Recent reports, however, have shown signs of improvement. Hiring has picked up, which has boosted consumer confidence. Employers added 171,000 jobs in October and job gains in August and September were higher than first estimated. The unemployment rose to 7.9 percent from 7.8 percent as more of those out of work began searching for jobs.
A survey by the University of Michigan last week found that consumer sentiment improved for the fourth straight month to its highest level in five years.