Inventories Dip to Lowest Level in 2 Years : Economy: Business sales make fourth monthly gain in a row.

Businesses allowed their inventories to drop 0.3% to the lowest level in two years in July, the government said Monday. Business sales rose for the fourth straight month, the longest string in two years.

Analysts believe that the inventory liquidation could lead to increased production and jobs if consumer demand strengthens.

“What we’re talking about is a situation when final sales pick up, production will pick up and that means good economic growth in the second half of the year,” said economist John Silvia of Kemper Financial Services in Chicago. For now, he added, current production levels can meet demand.

Some analysts, however, noted that retail sales fell in August. They said that illustrated continued weak demand, which could curb production later and further curtail economic growth.

“My concern is that if we don’t see any demand by consumers in the next couple of months, we might see inventories stop falling and even start to grow,” said economist Gilbert Benz of the Swiss Bank Corp. of New York. That could trigger cuts in production and employment, he said.

The Commerce Department said inventories totaled a seasonally adjusted $804.5 billion, down from $807.1 billion in June and the lowest level since $804.0 billion in July, 1989.

It was the sixth straight decline, the longest stretch since eight consecutive drops from August, 1982, to March, 1983.

The report said July business sales rose 0.8% to a seasonally adjusted $541.0 billion, up from $537.0 billion in June. It marked the longest string of gains since the four-month period from December, 1989, through March, 1990.