Business inventories dip more than expected

Businesses slashed inventories more than expected in May, the ninth consecutive decline, as companies continued to trim stockpiles amid a severe recession.

The Commerce Department said Tuesday that inventories fell 1 percent in May. Economists expected a 0.8 percent drop.

Total business sales dipped 0.1 percent in May, led by a 0.9 percent drop in sales by manufacturers. Sales at the wholesale and retail levels actually posted gains in May.

In a separate report Tuesday, the government said retail sales also rose in June, raising hopes that the all-important consumer sector could be stabilizing. Since consumer spending accounts for about 70 percent of total economic activity, a rebound is seen as vital to boosting overall economic growth and ending the longest recession since World War II.

For May, inventories held by manufacturers dipped 0.6 percent, wholesale inventories fell 0.8 percent and retail inventories dropped 1.6 percent.

The ratio of inventories to sales edged down to 1.42 from 1.43 in April. That means it would take 1.42 months to exhaust current stockpiles at the May sales pace. A year ago, the ratio stood at 1.27 months.

Total business inventories have fallen for nine straight months, the longest stretch of declines since 15 consecutive drops during the last recession in 2001-2002. The big reductions in inventories have translated into sharp production cutbacks at factories, a key drag on the economy.

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.

Copyright 2009 The Associated Press.