Businesses slashed their inventories for a sixth straight month in February as they tried to cope with a steep recession.
The Commerce Department said Tuesday that business inventories dropped 1.3 percent in February, matching the January decline and close to the 1.2 percent fall that economists had expected.
The sixth straight decline is the longest stretch since stockpiles fell for 15 straight months ending in April 2002, a period that covered the country’s last recession.
The drop in stockpiles occurred at all levels of the supply chain. Manufacturers cut inventories 1.2 percent, while wholesalers slashed 1.5 percent and retailers trimmed stockpiles on their shelves and back lots 1.2 percent. The wholesale drop was the biggest one-month reduction in more than 17 years.
Economists believe the drawdown in inventories will contribute to a sharp contraction in economic activity in the first quarter. The overall economy, as measured by the gross domestic product, fell at an annual rate of 6.3 percent in the final three months of last year. Many economists expect the first-quarter contraction will be around 5 percent.
However, once stockpiles have been reduced more in line with slower sales, businesses may be able to increase orders for new goods. If that occurs, the increased production should help end the current recession, which has matched the longest downturn in the post World War II period.
Factories hold about a third of all inventories, wholesalers hold about 25 percent and retailers hold the rest.
The 1.3 percent decline in inventories in February came in a month when total business sales rose 0.2 percent, following a 1.2 percent plunge in total sales in January.
The ratio of inventories to sales dipped slightly to 1.43 in February after hitting a nearly seven-year high of 1.45 in both December and January. The ratio means it would take 1.43 months to deplete stockpiles at the February sales pace. A year ago, the ratio stood at 1.29 months.
Many business have been scrambling to reduce inventories as sales have plunged. U.S. auto sales for General Motors Corp., Chrysler LLC and Ford Motor Co. fell to record lows in February before rebounding slightly in March.
Other companies taking steps to clear out their shelves and back lots include Goodyear Tire & Rubber Co., which said last week that it plans to cut inventories 14 percent this year.
Copyright 2009 The Associated Press.