U.S. industry began rebuilding inventory stockpiles in January despite heavy sales, the government reported yesterday, and a senior Commerce Department economist said the report was an indication of confidence in the economy.

Manufacturers accounted for most of January's 1.1 percent increase over December inventories, adding a seasonally adjusted $4.5 billion to their stockpiled goods and materials, the report said.

Increasing inventories can indicate a backup in the nation's warehouses and signal a drop in demand, resulting in possible production cutbacks and layoffs. But the jump in January, when sales remained stronger than expected, may show that manufacturers are preparing for sales "if in fact the economy does not turn down," according to one analyst.

William Cox, the department's deputy chief economist, said the increase was the biggest in manufacturing since December 1974, just before the 1975 recession. That inventory buildup was accompanied by falling sales, however, he said. Taking the rising sales of recent months into account, Cox said he read the inventory increase as "really a sign of strength in the economy."

He said the gain seemed to be the kind of voluntary buildup "that results in increases in industrial production."

Inventories had been trimmed to "a pretty lean level" in the months of recovery from last year's recession, he said, and many industries are ready to build back up.

The seasonally adjusted value of U.S. business inventories declined about 0.3 percent in December, the first decrease in five years, before rising about $5 billion in January to a total of $461.8 billion, the report said.

Business sales rose 1.9 percent in January -- following a 1.1 percent rise in December -- and lowered the department's closely watched inventory-to-sales ratio to 1.36, the lowest it has ever been.

That ratio, down from 1.37 the previous month, is intended to show how many months it would take for manufacturers, retailers or wholesalers to sell off their inventories at current sales rates.