Wholesale inventories drop in July

WASHINGTON - September 11, 2009 Rising sales should help convince businesses to stop slashing inventories and increase their orders for more goods, a shift that would boost production at the nation's beleaguered factories and aid a broader economic recovery.

The Commerce Department said wholesale inventories declined 1.4 percent in July, more than the 1 percent drop economists expected. But that decline followed a 2.1 percent fall in June, down from the 1.7 percent drop originally reported.

Sales at the wholesale level rose 0.5 percent in July, the fourth consecutive increase and the biggest gain since a 2 percent jump in June 2008.

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 July inventory drop left the inventory to sales ratio at 1.23, meaning it would take 1.23 months to exhaust stockpiles. That was slightly lower than the 1.25 ratio in June, but still above the 1.13 inventory to sales ratio of a year ago.

The rise in sales at the wholesale level come amid continued weakness at many retail establishments, which reported lackluster back-to-school sales in August. However, automakers saw a spurt in activity from the government's popular Cash for Clunkers program.

Ford Motor Co., Toyota Motor Corp. and Honda Motor Co. all reported increased sales in August as consumer snapped up their fuel-efficient models. But rivals Chrysler Group LLC and General Motors Co., which have just emerged from bankruptcy protection, saw their sales fall for the month.

The 11th straight drop in wholesale inventories is the longest stretch on records that date to 1992, surpassing the old mark of nine straight decreases from June 2001 to February 2002, a period that covered the last recession.

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