Wholesale inventories and sales both up in April

Inventories held by wholesalers rose for a fourth straight month in April while sales rose for a 13th consecutive time. Both gains were encouraging signs for a sustained economic recovery.

Wholesale inventories increased 0.4 percent last month after a 0.7 percent gain in March, the Commerce Department said Wednesday.

Sales increased 0.7 percent in April, helped by higher demand for autos, lumber, computers and electrical equipment. The rise followed a 2.4 percent surge in March.

The hope is that a steady rise in demand will prompt businesses to step up orders and restock depleted shelves. That would give a boost to factories and prompt them to increase hiring.

Federal Reserve Chairman Ben Bernanke said debt problems in Europe might only amount to a "modest" drag on the U.S. economy if the financial markets can halt their slide.

Investors seemed pleased after hearing Bernanke's outlook. The Dow Jones industrial average was up more than 100 points in midday trading, climbing back above 10,000.

Since sales rose at a faster clip than inventories were rebuilt, the ratio of inventories to sales fell to 1.13. That's the lowest point on records that go back to 1992. At that rate, it would take only 1.13 months to clean out the remaining inventories at the April sales pace.

Before that liquidation began, inventories had jumped from around 1.15 months to a peak around 1.4 months in the space of about six months from the middle of 2008 to early 2009.

Over the past decade, a more normal level during recoveries has been between 1.15 months to 1.2 months.

Peter Newland, an economist at Barclays Capital, said the return to a lower ratio "suggests that firms are likely to continue to rebuild stock levels in coming months."

Inventories at the wholesale level had fallen for 13 consecutive months through September of last year. Businesses went through a massive liquidation of their stocks in a struggle to contain costs during the recession.

The move away from slashing inventories to restocking has played an important role in supporting growth in the past two quarters. A rise in factory orders has made the manufacturing sector one of the strongest contributors to the economic recovery.

The overall economy, as measured by the gross domestic product, grew at an annual rate of 5.6 percent in the final three months of last year, a surge powered by a swing in inventories. Growth slowed to 3 percent in the first three months of this year with continued strength from inventories.