Business Sales Up 0.9% in July, a 3-Month High

Business sales in July posted the sharpest gain since April while inventories grew barely at all, the Commerce Department reported Monday.

The sales and inventories statistics led some economists to predict better days ahead for U.S. manufacturers as businesses begin restocking their shelves to meet increased demand.

In another report, the Federal Reserve Board reported that the operating rate at the nation’s factories, mines and utilities advanced slightly in August but remained well below the level of a year ago.

The Commerce report said sales increased 0.9% in July to a seasonally adjusted total of $422.2 billion. This was the best increase since a 1.35% April gain and followed a 2.3% June decline.

In addition to the healthy sales increase, the department said business inventories rose a slight 0.02% in July to $579.75 billion, following a much-larger 0.3% increase in June.

Analysts had said much of the June growth was unwanted inventory buildup as businesses were caught in the sharp slowdown in sales.

While these sales figures cover July, the government said Friday that an advance report of just retail sales showed them up a solid 1.9% in August, led by surging consumer demand for autos.

The big demand for autos is likely to lead to further declines in inventory levels in coming months, economists said.

Roger Brinner, an economist with Data Resources of Lexington, Mass., said the boom in auto sales had prompted him to revise his estimate of growth upward to a rate of 3.5% in the third quarter, rather than a previous estimate of 2%.

The government is due to release its preliminary “flash” estimate of economic growth for the July-September quarter on Friday.

The Reagan Administration has been predicting a sharp rebound in economic activity in the second half of the year following a sluggish 1.1% rate of growth during the first six months.

Robert Ortner, chief economist for the Commerce Department, said the inventory drawdown that businesses had been going through appears to be completed, clearing the way for increased production in coming months.

The report showed that the ratio of inventories to sales dropped to 1.37 in July, down from 1.39 in June. That means that it would take 1.37 months to exhaust existing inventories at the July sales pace.

The big jump in sales came from a 3.4% increase in sales by wholesalers. Sales by retailers were up a more modest 0.2%, while manufacturing sales fell a slight 0.04%.

The tiny inventory increase came from a 0.4% increase in stockpiles held by wholesalers. Inventories at the retail level grew by only 0.1%, while manufacturing inventories fell 0.2%.

The Federal Reserve Board said American industries operated at 80.5% of capacity in August, up from an 80.4% operating rate in July.

However, the July, June and May operating rates were all revised down as the U.S. industrial sector continued to suffer the effects of the country’s disastrous trading performance.

The changes left U.S. industry operating 1.5 percentage points below where it was a year ago.

But David Ernst, an economist with Evans Economics, a Washington consulting firm, said operating rates will likely rise further in coming months as the economy rebounds from the sluggish growth of the last year.

“I think we will see factory output rising pretty steadily in the second half of the year. If nothing else, we will get help from a change in the inventory situation and a little less bad news on foreign trade,” Ernst said.

By industry, the August report showed manufacturers operated at 80.2% of capacity last month, up from 80% the month before. The gain came from manufacturers making durable goods--items expected to last three or more years.

The biggest increase was recorded by auto makers, a 3.3 percentage point advance, which left their operating rate at 86.7% in August.

The operating rate in the aerospace and transportation equipment industry rose 1.1 percentage points, while primary metals such as steel increased their operating rate by half a percentage point.

U.S. mines operated at 81.3% of capacity in August, down from 81.9% in July. Utilities operated at 83.4% of capacity, down from 83.9% the month before.