Sales gains spur stores to increase inventories


WASHINGTON - Companies from Tiffany & Co. to Home Depot are restocking shelves in a move that will boost economic growth and may keep the recovery on track through 2010.

Tiffany, based in New York, is planning for a "high single-digit percentage increase" in inventories this year as the world's second-largest luxury jewelry retailer opens new stores, Chief Financial Officer James Fernandez told analysts last month.

Home Depot, the largest U.S. home-improvement retailer, "will be building inventory" this year in support of stronger sales, Carol Tome, chief financial officer of the Atlanta company, said recently in an analysts call.

"We're moving into the restocking phase," said David Hensley, director of global economic coordination for JPMorgan Chase in New York.

"We'll see successive additions to growth in the first quarter, second quarter, and third quarter," he said.

JPMorgan advised clients this month to stick with a "recovery trade" that favors stocks over bonds and is overweight with "cyclical" shares that will rise in an economic rebound.

"The particular area of the economy which people are not putting enough focus on is how significant this rebound of inventories is going to be," former Federal Reserve Chairman Alan Greenspan said this month.

The odds of a double-dip recession, he said, "have fallen very significantly in the last two months."

The chances of a relapse into recession this year are 15 percent, according to a survey of 46 economists by Bloomberg News this month, down from 25 percent in September, 2009.

The economy expanded at a 5.6 percent annual rate in the fourth quarter, the most in six years. Inventories provided the biggest boost by adding 3.8 percentage points to gross domestic product, based on Commerce Department data.

GDP will grow 4.5 percent in the second quarter, with inventory restocking contributing 2 percentage points, said Joseph LaVorgna, chief U.S. economist for Deutsche Bank New York.

Manufacturers added to stockpiles in March after 46 months of contraction, based on a factory index compiled by the Institute for Supply Management in Tempe, Ariz. Truckers benefited, as their business increased in the first quarter, according to a survey of about 25 companies by Stifel Nicolaus & Co.

The shift in the inventory cycle will lead to more hiring as companies increase production, Mr. LaVorgna said. Manufacturing payrolls rose in March for the third consecutive month, which had not happened since 2006.