Economic Data Suggest Growth Accelerating

WASHINGTON — Businesses piled up inventories in January at the fastest monthly rate since last April, the government reported Tuesday, suggesting that growth in the first quarter may be stronger than expected.

Wholesale inventories rose 1.0% in January after a 0.1% gain in December, the Commerce Department said. This bulge of unsold goods could push first-quarter growth higher than the 3.9% annual pace in the final quarter of 1996, some analysts said.

“It looks like firms are stepping up production and adding inventories in anticipation of better sales, because inventory gains were matched by an equal gain in sales,” said Cary Leahey, a senior economist at Lehman Bros. in New York.

Retail sales, meanwhile, rose a greater-than-expected 1.1% during the first week of March over the same week in February, and 1.5% over the previous week, according to LJR Redbook Research. “The bottom line is the consumer is still spending at a strong pace,” said Jonathan Basile, an economist at HSBC Markets in New York.

Stocks were mixed and bond prices fell--pushing interest rates higher--on these signs of growth, even though another government report released Tuesday showed that labor costs are still rising at a historically low rate.

News of the tame labor costs came in a Labor Department report showing that productivity of U.S. workers rose 1.1% in the fourth quarter, half of the agency’s initial estimate of 2.2%. However, most of the revision was the result of a slowdown in production, not accelerating labor costs.

Unit labor costs rose 2.5% in the fourth quarter, faster than the initial estimate of 1.4%. Still, that’s less than the third quarter’s 3.3% increase.

For all of 1996, nonfarm productivity--a measure of business efficiency that tracks the time and effort of providing goods and services--grew a revised 0.7%, up from the 0.3% increase in 1995 and the largest yearly gain since the 3.2% rise in 1992.

The downward revision in productivity, coming on a day when other reports showed signs of stronger growth, raised concerns among bond investors that the Federal Reserve Board may raise interest rates later this month. Higher borrowing costs are one tool used by the central bank to slow growth as a way of keeping inflation in check.

Indeed, the official who compiles U.S. growth statistics said he’s looking for solid first-quarter growth.

“Based on the data we’ve seen so far, it looks like over 3.0%” in the quarter ending March 31, said Everett Ehrlich, undersecretary of economic affairs at the Commerce Department.

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Worker Productivity

Percentage change from previous quarter, seasonally adjusted:

4th quarter 1996: +1.1%

Source: Labor Department