Inventories Down for Sixth Straight Month

Businesses pared excess inventories in July for the sixth straight month, helped by a solid gain in sales. But some economists worried stocks could pile up again if consumers, shaken by last week’s attacks, close their pocketbooks.

Unsold goods on shelves and back lots fell by a seasonally adjusted 0.4% in July, after a 0.6% reduction in June, the Commerce Department said Monday.

At the same time, businesses’ sales rose 0.4%, after having plunged by 1.5% in June.

The report showed the increase in July’s sales pulled down the inventory-to-sales ratio--which measures how long it would take businesses to exhaust their inventories--to 1.42 months.

Economists say companies must whittle excess stocks to set the stage for increased production, something that could help economic growth down the road. But last week’s terror attacks add uncertainties to companies’ business plans, economists said.

“Just when businesses thought they finally cleared most of their unwanted inventories from stores and warehouses, inventories may quickly build again,” said Mark Zandi, chief economist at Economy.com. “If consumers pull back spending, businesses may have to cut production even more to get output back in line with sales.”

Although economists view inventory reduction as a good thing, it does subtract from economic growth as measured by the gross domestic product.

In July, inventories at factories, which have been hardest hit by the slowdown that started in the second half of last year, declined by 0.6%, while sales rose 0.5%.

Retailers’ inventories edged up by 0.1% in July, while sales grew 0.2%.

At wholesalers, inventories fell by 0.7% and sales grew by 0.6%.

Automobile dealers’ inventories rose by 1% in July, while sales rose 0.6%.