Makers of children's products and charities that run second-hand shops are stuck with more than $1 billion of inventory they can't sell because of a new federal product-safety law, according to surveys by trade groups and the charities.

The goods, which have -- or are suspected of having -- illegal levels of lead or plastic-softening chemicals called phthalates, include everything from beach balls to second-hand clothes to brand-new all-terrain vehicles for children. The goods -- piled up in warehouses and storerooms -- will...