By Bob Willis
(Bloomberg) – Inventories at U.S. businesses fell in September to the lowest level in almost four years, signaling orders will rise in coming months as spending picks up.

The 0.4 percent decrease in stockpiles was smaller than anticipated and brought the value of goods on hand down to $1.3 trillion, the fewest since November 2005, figures from the Commerce Department showed today in Washington. Sales decreased 0.3 percent, reflecting a slump in demand for autos that was reversed last month.

Companies depleted inventories at a record rate in the first half of the year, laying the groundwork for economic growth in the second half as consumers and businesses started spending again. Lean stockpiles at manufacturers such as carmakers and growing exports will spur a factory rebound that will propel the economic expansion into next year.

“Business cut back inventories to bare minimum levels as they mistakenly thought consumers went on a permanent buying strike,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. “Now they have to ramp up production to restock lest consumers find store shelves bare ahead of the all-important Christmas buying season.”

Other reports today showed purchases at retailers improved more than anticipated in October and manufacturing in the New York region expanded this month for a fourth consecutive time.

October Sales

Sales at retailers last month rebounded 1.4 percent following a 2.3 percent drop in September that was larger than previously estimated, according to Commerce Department figures. Purchases excluding autos rose less than forecast.

The Federal Reserve Bank of New York’s Empire State index fell to 23.5 from a five-year high of 34.6 in October. Readings greater than zero signal growth.

Economists forecast inventories would decline 0.7 percent, according to the median of 58 projections in a Bloomberg News survey. Estimates ranged from declines of 1.3 percent to 0.2 percent.

Companies had 1.32 months’ supply of goods on hand in September, the same as the prior month’s almost one-year low.

Retailers’ inventories, the only part of today’ report not previously released, climbed 0.6 percent after a 2.6 percent decrease the prior month. Retail sales, excluding food, fell 2.6 percent in September. Today’s October sales report from Commerce showed those purchases increased 1.4 percent last month.

Breakdown of Stockpiles

Retail inventories account for a third of all business stockpiles. Factory inventories fell 1 percent and wholesale stockpiles dropped 0.9 percent.

Total business inventories shrank at a $130.8 billion annual rate in the third quarter after falling at a record $160.2 billion annual pace in previous three months.

Today’s report showed auto inventories climbed 3.8 percent as sales dropped 14 percent. That pushed the industry’s inventory-to-sales ratio for September up to 2.05 months from 1.69 months in August.

Even with the expiration of the government’s “cash-for- clunkers” auto trade-in program in late August, total consumer spending may rise the rest of this year, though at a slower rate, according to economists surveyed this month by Bloomberg.

Nordstrom Inc., the U.S. department-store chain with more than 100 namesake locations, last week said third-quarter profit rose after revenue increased amid tighter control of stockpiles.

“We continue to focus on flexibility and managing inventory,” company president Blake W. Nordstrom said on a conference call. “We’ve demonstrated that we can achieve an improvement in sales while maintaining inventory discipline.”

J.C. Penney Co., the third-largest U.S. department-store company, last week raised its annual profit forecast after third- quarter results exceeded its expectations as the company held down inventories and reduced clearances.

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