Company Inventories Continue Reductions

(WASHINGTON) — Businesses slashed inventories for a 13th consecutive month in September although the pace of reductions slowed from the previous month. The economic rebound is expected to remain tentative until businesses switch to rebuilding their stockpiles.

The Commerce Department said Monday that businesses reduced inventories 0.4 percent in September. That's slightly better than the 0.7 percent drop economists expected and much improved from a 1.6 percent decline in August. See pictures of retailers which have gone out of business.

Sales also fell 0.3 percent in September, the first setback since May.

Still, businesses soon may begin restocking depleted store shelves after more than a year of cuts. If that occurs, factory production will begin to rise on a sustained basis, helping to bolster a broad recovery from the worst recession since the 1930s.

The ratio of sales to inventories held steady in September at 1.32. That means that it would take 1.32 months to deplete stockpiles at the September sales pace. See which businesses are bucking the recession.

The September decline reflected a 1 percent drop in inventories held by manufacturers and a 0.9 percent fall in stockpiles held by wholesalers. Retail inventories rose 0.6 percent.

Factories hold about one-third of all inventories, wholesalers hold about 25 percent and retailers hold the rest.

The economy grew at a 3.5 percent pace in the third quarter, breaking a record string of four straight drops. Businesses did reduce their stockpiles of goods in the third quarter, but less than the record pace in the second quarter.

The hope is that even a small increase in demand will prompt factories to boost production and help sustain the recovery in the coming months.

The September reduction was the 13th consecutive decline, the longest stretch since inventories dropped for 15 straight months in 2001 to 2002, a period that covered the last recession. The last growth in inventories was a 0.1 percent rise in August 2008.

Read "How to Know When the Economy Is Turning Up."

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