Inventories in May Increase at Slowest Pace in Five Months : Economy: Report helps alleviate recession fears. Analysts expect higher sales to follow.

In a fresh sign that recession worries are receding, businesses added to their inventories in May at the slowest pace in five months. Analysts say a slower buildup in stockpiles will probably be matched by recovering sales.

The Commerce Department said Monday that inventories rose 0.4% in May, the 14th straight increase but less than half the revised gain of 1% for April. The last time they accumulated at a slower pace was in December, when they grew 0.3%.

“Businesses have done a good job gaining control over their inventories and they’ve done it quickly,” said Mark Zandi of Regional Financial Associates in West Chester, Pa., a forecasting service. “It’s more good news for the economy. The recession risks are very low.”

The government reported Friday that retail sales climbed a healthy 0.7% in June on top of a 0.9% jump in May. Reviving consumer activity combined with low inflation bode well for the economy for the rest of this year and into 1996, analysts said.

But they said the pickup in consumer spending could prompt the Federal Reserve Board to hold off cutting interest rates again.

“The Fed has room to cut if it wants to. But I don’t think it will as the economy continues to improve,” Zandi said.

The central bank cut a key short-term interest rate to 5.75% this month, the first decline in three years.

Analysts and investors will be looking for clues as to the next move when Fed Chairman Alan Greenspan delivers his semiannual report on the economy to Congress on Wednesday.

The news had little effect on Wall Street, where the Dow Jones industrial average overcame initial weakness to close up 27.47 at 4,736.29, surpassing the prior peak of 4,727.48 reached Thursday.

But bond yields rose sharply, pushing prices lower. The yield on the key 30-year Treasury bond closed at 6.67%, up from 6.60%.

The May inventory report, in line with analysts’ predictions, suggests stockpiles are being trimmed to manageable levels as retailers reduce prices to speed up sales. The last time inventories fell was in March, 1994, when they slipped 0.1%.

Meanwhile, the Commerce Department said sales rose 0.5% in May following two straight declines. Retail sales account for about a third of total sales.

The Commerce Department said inventories totaled a seasonally adjusted $956.2 billion in May, up from $952.2 billion. Inventories in May were 8.6% higher than a year earlier.

The increase in stockpiles included a 0.3% rise in interest-sensitive durable goods, such as cars and household appliances. Durable-goods inventories are 9.7% higher than a year earlier.

Inventory of non-durable goods, such as food and fuel, rose 0.6% and was 7% higher than a year earlier.

Sales in May were at a seasonally adjusted $676.6 billion, up from $672.9 billion.

The inventory-to-sales ratio fell to 1.41 from 1.42 in April, meaning it would take 1.41 months to exhaust stockpiles at the May sales rate.