Business Inventories Fall by 0.4 Percent

Businesses made progress whittling inventories of unsold goods in June even as sales fell by the largest amount in nine years.

The Commerce Department reported Wednesday that supplies on shelves and backlots declined by a seasonally adjusted 0.4 percent in June, the largest drop in three months. That came after business pared inventories by 0.2 percent in May. Inventories have fallen for five months in a row.

Sales, however, plunged by 1.4 percent in June, after posting a 0.9 percent increase the month before. June's sales decline marked the largest drop since a 1.5 percent decrease in August of 1992.

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 back in line with sales.

The yearlong economic slowdown has curbed Americans' appetite for goods, causing an inventory pileup. To reduce inventories, companies have laid off workers, reduced shifts and deeply discounted merchandise.

Economists say companies must pare excess stocks in order to lay the foundation for increased production in the future, something that would bode well for a comeback for the overall economy.

To avert a recession, the Federal Reserve has slashed interest rates six times this year, totaling 2.75 percentage points. Many economists predict another rate cut when the Fed meets Tuesday.

Wednesday's report also showed that the drop in June's sales lifted the inventory-to-sales ratio, which measures how long it would take businesses to exhaust their inventories, to 1.43 months, the highest level since April.

In June, inventories at factories, which have been hardest hit by the slowdown, declined by 0.7 percent, following a 0.6 percent drop the month before. But sales in June plunged by 2.8 percent, after a 2.4 percent increase.

Retailers' inventories decreased by 0.3 percent, after being flat in May. Sales slipped by 0.1 percent, erasing a 0.1 percent advance the month before.

At wholesalers, inventories edged down 0.2 percent, following a 0.3 percent rise. Sales fell by 0.9 percent, after a 0.5 percent decline.

Automobile dealers' inventories dipped by 0.2 percent in June, following a 0.3 percent gain in May.