August wholesale inventories decline, sales rise

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Associated Press

Posted on October 8, 2009 at 1:43 PM

WASHINGTON (AP) — Businesses reduced inventories at the wholesale level for a record 12th consecutive month in August, often evidence that companies are trimming orders to factories, which helped depress economic output during the recession. But in an encouraging sign, sales at the wholesale level jumped by the largest amount in 14 months.

The Commerce Department said Thursday that wholesale inventories fell 1.3 percent in August, worse than the 1 percent drop economists had expected. That followed a 1.6 percent drop in July initially reported as a 1.4 percent decrease.

But sales rose a better-than-expected 1 percent, the fifth straight gain and the largest increase since June 2008.

Economists hope the rising sales will encourage businesses to begin restocking their depleted shelves, a switch that would boost factory production and help bolster broad economic growth in coming months.

Analysts at Goldman Sachs expect the overall economy, as measured by the gross domestic product, grew at an annual rate of 3 percent in the July-September quarter and will advance at a similar rate in the current October-December period, signaling an end to the country's longest recession since the 1930s.

As businesses start restocking shelves, analysts said that will provide support for rising factory production and translate into a higher GDP reading. The concern is that consumer spending, which accounts for 70 percent of economic activity, could falter as the impact of various government stimulus programs begins to wane.

Car sales soared in August because of the government's Cash for Clunkers program which provided car buyers up to $4,500 to trade in their old cars for more fuel efficient models. That program ended at the end of August and sales fell sharply last month.

General Motors Co. reported that its sales plunged 45 percent in September from the previous year, while Chrysler Group LLC reported a 42 percent decline. Ford Motor Co. had a smaller decline of 5.1 percent.

Early reports from the nation's large retail chains showed sales rose last month for the first in more than a year. The International Council of Shopping Centers-Goldman Sachs preliminary tally registered an increase of 0.1 percent, compared with a 1 percent drop in September 2008. The modest increase is the first since July 2008, when the index rose 1.3 percent.

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 decline in inventories is the longest stretch on government records that date to 1992. The previous record was nine straight declines during a period that covered the nation's last recession in 2001.

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