Rise in Business Inventory Rate Dims Outlook

Business sales fell 0.3% in April while inventories of unsold goods were rising, the government said in a report Friday that was viewed as a bad omen for factory operating rates in the months ahead.

The Commerce Department said business sales totaled a seasonally adjusted $443.5 billion in April, following a 0.4% rise in sales during March.

Inventories held on shelves and in back lots rose 0.2% to $664.3 billion in April, following a 0.4% rise in March.

Layoffs Forecast

Analysts said the combination of rising inventories and falling sales will result in production cutbacks and layoffs in the months ahead.

Michael Evans, head of a Washington forecasting firm, predicted that overall economic growth, as measured by the gross national product, will decline 1% during the current April-June quarter, the first quarterly decline in the GNP since the 1981-82 recession.

The reason for his pessimistic forecast is a belief that factory production will drop substantially while high inventory levels are worked down.

The 0.3% fall in business sales in April reflected a big 1% drop in sales by manufacturers. Sales at the retail level and at the wholesale level rose 0.2% in April.

However, the government reported Thursday that retail sales fell 0.6% in May, a further sign that inventories are too high in the face of a substantial drop in consumer demand.

The combination of rising inventories and falling sales pushed the inventory-to-sales ratio to 1.50, compared to 1.49 in March. The new figure means it would take 1.5 months to eliminate existing inventories at the April sales pace.