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Just-in-time inventories are turning into just-too-much at companies around the world; they may become a drag on global economic growth. Companies may idle workers and production lines to clear out the excess. Factory inventories rose faster than sales last quarter for the first time since 2001, according to economists. This time, companies have been caught by the slump in the US housing industry and the mid-year run-up in energy prices that undercut demand. From trucks to mobile telephones to steel -- unsold goods are piling up around the world. Factory inventories worldwide rose faster than sales last quarter for the first time since 2001, according to economists at UBS in London. Inventories at US businesses rose 0.4 per cent in October, faster than the month before, the government reported on December 13, 2006. Reason: the US economy expanded in the third quarter at the slowest pace of the year, dragged down by weakness in the housing market, an unexpected slowdown in demand, and a surge in energy prices. The Commerce Department's final estimate of gross domestic product for the third quarter will show growth at an annual rate of 2.2 per cent, the same as the previous estimate, according to the median forecast of 67 economists in a Bloomberg News survey. A slowdown in business investment may make it difficult for the economy, already weighed down by the housing slump, to strengthen as the Federal Reserve forecasts. Slowing sales and higher inventory levels may limit manufacturing's contribution to growth, economists said. Companies as diverse as Rotterdam-based steel maker Arcelor Mittal, San Francisco-based retailer Williams-Sonoma Inc. and doll-maker Zapf Creation AG of Roedental, Germany, are cutting production and orders to bring stockpiles in line with lower sales. The risk is that the cutbacks start to feed on themselves, dampening demand further through slower job growth and investment, like a vicious cycle. Already, economists including Jan Hatzius, chief US economist at Goldman Sachs Group Inc. in New York, and Peter Hooper, chief economist for Deutsche Bank Securities, have reduced forecasts for economic growth to reflect lower output. Central bankers brush aside concerns about the slowdown, arguing the production cutbacks will be self-correcting rather than self-perpetuating, allowing companies to raise output again once they've worked off the excess supplies. Separately, economists expect the Labor Department to report that initial claims for unemployment benefits in the US rose to 315,000 last week, from 304,000 the week before. According to Federal Reserve, US economic growth will strengthen next year as the housing slowdown and auto-production cutbacks exert less of a drag on the economy. The adoption of just-in-time inventory management has enabled companies over the last 15 years to shrink the stockpiles they hold in relation to their sales. But it hasn't eliminated unwanted bulges in inventory entirely. Honeywell International Inc., the world's largest maker of airplane controls, said that earnings may beat some analysts' estimates next year on higher sales of jet parts and building safety and security products. Purchases in China and India will offset the US slowdown, officials said. Economists at HVB America Inc. say the drag on the economy from inventory cutbacks may last through next year as commodity prices level off following their rapid rise, reducing the incentive for companies to stockpile raw materials. Technology companies in Asia are feeling the fallout as the US economic slowdown ripples through the global corporate supply chain. Morris Chang, chairman of Hsinchu, Taiwan-based Taiwan Semiconductor Manufacturing Co., the world's biggest maker of customized chips, said that customers may not finish clearing inventories until the second quarter of next year.
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