Business inventories fall again

WASHINGTON The Commerce Department said Thursday that businesses cut stockpiles 1.1 percent in June, slightly larger than the 0.9 percent drop economists expected. The reductions have translated into sharp production cutbacks at factories, adding to the steep recession.

But in an encouraging sign for the future, the government said business sales at all levels rose 0.9 percent in June after being flat in May. It marked the first increase in total sales since July 2008.

The hope is that sales will strengthen in coming months as the economy pulls out of its steep nosedive. However, that expectation is far from certain. A separate report Thursday showed retail sales dipped 0.1 percent in July, worse than the 0.7 percent gain economists had expected.

The 1.1 percent decline in inventories marked the 10th consecutive month that businesses have drawn down their stockpiles, the longest stretch since a run of 15 straight months in 2001-2002, a period that covered the last recession.

The inventory decline in June reflected weakness at all levels of the supply chain. Manufacturers cut inventories 0.8 percent, wholesalers saw a drop of 1.7 percent while inventories held by retailers declined 1 percent.

With overall sales in June registering an increase, the ratio of inventories to sales edged down to 1.38 from 1.41 in May. That means it would take 1.38 months to exhaust inventories at the June sales pace. Even with the declines, the inventory-to-sales ratio is still above the 1.26 of a year ago.

Wholesale inventories are goods held by distributors who generally buy from manufacturers and sell to retailers. They make up about 25 percent of all business stockpiles. Factories hold another third of inventories and retailers hold the rest.

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