Inventories Fall 0.4% in May as Sales Rise 0.2%

Business inventories fell 0.4% in May, the steepest decline in more than two years, as business sales rose 0.2%, the Commerce Department said Monday.

Some analysts said declining inventory levels coupled with rising sales may be a sign that the economy will show renewed strength as businesses step up production to replace depleted stockpiles.

Also, in what should prove to be good news for the housing industry, the government said mortgage rates fell sharply in early June, posting the largest month-to-month decline in more than two years.

The Federal Home Loan Bank Board reported that fixed-rate mortgages averaged 12.86% in early June, down from 13.49% in May. The May-June decline, almost twice the size of the April-May drop, was the largest since late 1982, the bank board said.

Rates on adjustable mortgages also fell sharply in early June, dipping to 10.88%, down from 11.35% the month before.

In its report on business inventories, the Commerce Department said stockpiles on shelves and in back lots totaled $577.9 billion in May, down from an April total of $580.2 billion.

“I think businesses are clearing the decks, getting rid of excess merchandise that has been sitting on the shelves,” said Michael Evans, head of Evans Economics, a Washington forecasting firm. “There should be re-stockpiling in the third quarter which will send industrial production back up.”

In a related story, the Federal Reserve Board reported that consumer installment borrowing increased by $9.04 billion in May, the most this year and enough to fuel a skyrocketing annual rate of growth of 22.4%.

The expansion of installment debt in May brought the total being paid back in monthly payments to $488.7 billion.

Automobile credit alone grew by $3.8 billion, up slightly from $3.5 billion in April. A category that includes personal loans and refinancings was up $2.6 billion compared to $2.4 billion the month before.

Installment credit growth was just $1 million more than in February and not far from the record $9.09 billion in May of last year.

The 22.4% annual rate of installment credit growth in May was faster than the 21.8% in all of the January-March quarter.

Installment borrowing in the past year grew 20.6%.