Inventories’ Slight Rise in June Eases Recession Fears

Businesses held inventory growth in June to the smallest gain in 15 months, suggesting to some analysts that the economy entered the second half of the year with little risk of falling into recession.

Economists had been concerned that as sales slowed earlier in the year, businesses would be caught with excess stocks, leading to major production cuts and lost jobs.

But Robert G. Dederick, economic consultant for Northern Trust Co. in Chicago, said, “The inventory correction seems to be proceeding nicely.”

“It has slowed the economy temporarily to a halt, but it didn’t trip it into a full recession,” he said. “Chances are at this point it isn’t likely to.”

The Commerce Department said Monday that inventories edged up just 0.2% in June, the smallest advance since stockpiles fell 1% in March, 1994.

The gain was less than the 0.3% expected by many analysts and just half the 0.4% growth a month earlier.

Inventories totaled a seasonally adjusted $958.5 billion, up from a revised $956.5 billion in May. The May total was initially estimated at $956.2 billion.

Although automobile dealers sliced 0.9% from their inventories in June, Dederick noted that signs of excess remained in some other sectors.

For example, inventories at stores selling furniture and other home furnishings grew 1%. But excluding car lots, stockpiles were up 0.4%.

At the same time, the Commerce Department said sales rose 0.7% to a seasonally adjusted $683.1 billion, up from a revised $678.4 billion a month earlier. The May total was originally said to be $676.6 billion.

As a result, the inventories-to-sales ratio was 1.40 in June, down from 1.41 in May and the lowest since 1.38 last January. It had risen to 1.45 in April.