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11-12-2007, 01:58 PM
. By Emily Kaiser - Analysis
WASHINGTON (Reuters) - Unsold goods are piling up in warehouses as the housing meltdown and soaring oil prices strain consumers, raising fears that already glum fourth-quarter growth prospects may tip toward recession.
Federal Reserve Chairman Ben Bernanke warned last week that economic growth would slow from the third quarter's surprisingly strong 3.9 percent annual rate. But recent data on inventories suggests the slowdown may be even more severe than the central bank has anticipated.
Wholesale inventories rose 0.8 percent in September, far greater than the 0.2 percent gain that analysts had expected, according to government data released last week. That will likely boost third-quarter growth even more, but take a toll on the current period as businesses work off the unsold goods.
The Institute for Supply Management's closely watched report on manufacturers told a similar story for October. ISM's survey, released earlier this month, showed that manufacturers were increasingly worried about customers' inventory levels, with stockpiles growing in a wide range of sectors, from plastics and rubber products to food and tobacco.
"The main source of concern at this point is how this inventory build will unwind in the fourth quarter," Merrill Lynch analyst David Rosenberg wrote in a note to clients.
Rosenberg estimated that revised third-quarter GDP data will show an extra $18 billion in inventory. An equal amount may be erased from the fourth quarter, which would take his GDP forecast "perilously close to flat, or even negative."
Ordinarily, an inventory build-up is seen as a temporary imbalance that the world's biggest economy can quickly digest. But with consumer confidence sliding and recession fears mounting, this inventory spike raises questions about demand.
Determining how the current episode will play out is tricky because economists have few tools to gauge how tightening credit will ultimately affect spending, said Douglas Lee, chief economist for research group Economics from Washington. Continued...
continues at: http://www.reuters.com/article/reutersEdge/idUSN1246297620071112
WASHINGTON (Reuters) - Unsold goods are piling up in warehouses as the housing meltdown and soaring oil prices strain consumers, raising fears that already glum fourth-quarter growth prospects may tip toward recession.
Federal Reserve Chairman Ben Bernanke warned last week that economic growth would slow from the third quarter's surprisingly strong 3.9 percent annual rate. But recent data on inventories suggests the slowdown may be even more severe than the central bank has anticipated.
Wholesale inventories rose 0.8 percent in September, far greater than the 0.2 percent gain that analysts had expected, according to government data released last week. That will likely boost third-quarter growth even more, but take a toll on the current period as businesses work off the unsold goods.
The Institute for Supply Management's closely watched report on manufacturers told a similar story for October. ISM's survey, released earlier this month, showed that manufacturers were increasingly worried about customers' inventory levels, with stockpiles growing in a wide range of sectors, from plastics and rubber products to food and tobacco.
"The main source of concern at this point is how this inventory build will unwind in the fourth quarter," Merrill Lynch analyst David Rosenberg wrote in a note to clients.
Rosenberg estimated that revised third-quarter GDP data will show an extra $18 billion in inventory. An equal amount may be erased from the fourth quarter, which would take his GDP forecast "perilously close to flat, or even negative."
Ordinarily, an inventory build-up is seen as a temporary imbalance that the world's biggest economy can quickly digest. But with consumer confidence sliding and recession fears mounting, this inventory spike raises questions about demand.
Determining how the current episode will play out is tricky because economists have few tools to gauge how tightening credit will ultimately affect spending, said Douglas Lee, chief economist for research group Economics from Washington. Continued...
continues at: http://www.reuters.com/article/reutersEdge/idUSN1246297620071112