Bloomberg News

WASHINGTON - Inventories at factories, wholesalers, and retailers rose in May at the fastest pace in six months as businesses bet that sales would pick up in the second half, government figures showed Monday.

Inventories rose 0.8%, reflecting increased stockpiles of autos, clothing, and general merchandise, after gaining 0.5% in April, the Commerce Department said. Business sales increased 1%, against a 0.6% dip the month before.

May's increase in inventories was the largest since a 0.9% gain last November, suggesting "businesses are still very confident" about the economy, said Tim O'Neill, chief economist at Bank of Montreal in Toronto.

Central bankers raised the overnight bank lending rate to a nine-year high of 6.5% in six steps beginning in June 1990 in an effort slow growth and keep inflation in check.

Higher rates appear to be having some of their intended effect. Consumer spending slowed in the second quarter after racing ahead in the first three months at the fastest pace in 17 years. That had an impact on inventories, too. Stockpiles of unsold goods fell to a record low in March, and slow inventory-building subtracted 1.5 percentage points from the first quarter's annual growth rate, which was calculated at 5.5%.

May's inventory gain points to "an effort to catch up to unexpected sales in the first quarter," said Avery Shenfeld, a senior economist at CIBC World Markets Inc. in Toronto.

The inventory-to-sales ratio, which measures the amount of time that goods sit at businesses, was unchanged at 1.32 months in May, just above the record low of 1.31 months in March.

"There does not appear to be any overhang of inventories that would further dampen economic activity going forward," said Steve Wood, an economist at Banc of America Securities in San Francisco.

Retail inventories, which make up about one-fourth of the combined report, rose 1.4% after rising 0.3% in April, indicating increases in everything from automobiles and clothing to furniture and food, Monday's report showed.

The rise in retail inventories was the largest since a 1.9% jump in August 1994. Retail sales rose 0.3% in May after falling 0.5% in April. Wholesale inventories, which make up less than one-fourth of the combined report, rose 0.8% after increasing 0.9%, and wholesale sales were up 0.4%, versus a 0.3% rise in April.

Manufacturing inventories rose 0.2% in May after increasing 0.4% in April. Manufacturing sales rose 1.9%, against a 1.2% decline.

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