Inventories Unchanged, Sales Jump 1.1% in May

Businesses made progress whittling inventories of unsold goods in May, helped out by the biggest increase in sales in more than a year.

The Commerce Department reported Monday that supplies on shelves and back lots were unchanged, following a 0.2% drop in April.

Sales in May jumped by 1.1%, after falling by 0.5% the month before. The advance in sales was the largest since a 1.9% increase in March 2000.

“We’re moving in the right direction, but more work still needs to be done,” said economist Clifford Waldman of Waldman Associates.

Federal Reserve Chairman Alan Greenspan has attributed much of the economy’s weakness to an effort by businesses to cut back quickly on production to bring inventories in line with sales.

Economists said it is crucial for companies to pare excess stocks in order to lay the foundation for increased production. That would bode well for a comeback for the overall economy, they said.

Monday’s report showed that the increase in May’s sales pulled the inventory-to-sales ratio, which measures how long it would take businesses to exhaust their inventories, to its lowest point this year.

The inventory-to-sales ratio dipped to 1.42 months in May, from 1.44 in April. May’s ratio is the lowest since December, when it also stood at 1.42 months.

In May, inventories at factories, which have been hit hardest by the slowdown, fell by 0.3%, following a 0.2% decline the month before. Sales in May rose by 2.6%, after a 2.4% drop.

Retailers’ inventories rose by 0.4%, after a 0.3% decrease in April. Sales were up by 0.3% in May, following a 1.5% increase the month before.