Surging Sales Spur Big Drop in Inventories

Business inventories fell 0.4% in August, the biggest decline in 17 months, as stockpiling failed to keep pace with a surge in sales, the government reported today.

The Commerce Department said that the value of goods on shelves and back lots dipped to $577.9 billion in August following a 0.1% July increase. The decline was the sharpest since a 0.6% drop in March, 1983.

The big August decline in inventories could signal that businesses are finally working through a backlog and will begin placing new orders. Those orders could translate into increased production and rising employment.

The drop in inventories came as sales soared in August, advancing by 1.6% after a 1% July increase. The gain left sales at $429.1 billion in August.

Retail Sales Up 2.3%

The overall sales gain was paced by a 2.3% jump in sales by retailers. Sales at the wholesale level rose by 1.7% while sales by manufacturers were up 1.1%.

The 0.4% drop in inventories was led by a 0.9% decline in stocks at the retail level as shelves were depleted by the surge in sales.

Inventories fell 0.2% at both the wholesale and manufacturing levels.

With sales rising and inventories falling, the inventory-to-sales level declined to 1.35 in August. This meant that it would take 1.35 months to deplete inventories at the August sales pace.

It was the lowest inventory-to-sales ratio since a similar 1.35 in May. The record low was 1.3 set in January, 1984.