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Wholesale Inventories Drop Again

Tue, 08/11/2009 - 6:15am
Martin Crutsinger, AP Economics Writer

WASHINGTON (AP) -- Businesses slashed inventories at the wholesale level for a record 10th consecutive month in June, a decline that has contributed to the longest recession since World War II.

The Commerce Department said Tuesday that wholesale inventories declined 1.7 percent in June, nearly double the 0.9 percent decrease economists had expected.

But in an encouraging sign, sales rose 0.4 percent for a second straight month, the first back-to-back increases in a year.

The hope is that a rebound in sales will encourage businesses to switch from reducing their stockpiles to building up inventories to meet rising demand. That change would generate rising orders to U.S. factories, helping to support a rebound in the overall economy.

The 1.7 percent drop in June inventories followed a 1.2 percent reduction in May and marked the 10th straight decline. That record stretch surpassed the old mark of nine straight declines from June 2001 to February 2002, during the last recession. The government's records go back to 1992.

The latest inventory drop left the inventory to sales ratio at 1.26, meaning it would take 1.26 months to exhaust stockpiles at the June sales pace. That was slightly lower than the 1.28 ratio in May, but still well above the 1.11 inventory to sales ratio 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.

The 0.4 percent increases in sales in June and May were the first consecutive gains since sales rose for four straight months in March to June of last year. Starting in July, sales had fallen every month until rising in May.

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