US Wholesale Inventories Drop for Ninth Month

Wholesale inventories fell for a ninth consecutive month in May, a decline that has contributed to the longest recession since World War II as factories have been forced to slash production amid crimped demand.

The Commerce Department said Thursday that inventories dipped 0.8 percent in May, slightly smaller than the 1 percent decline economists had expected.

Sales at the wholesale level posted a 0.2 percent rise in May, better than the expected flat reading. It was the best showing for sales since a similar rise in February.

The hope is that sales will soon stabilize and help convince businesses that they need to restock, a shift that will give a boost to the ailing manufacturing sector.

The further decline in inventories and the small rise in sales left the inventory to sales ratio at 1.29. That's slightly below the 1.31 reading in April, but above the 1.12 reading of a year ago. The May level means it would take 1.29 months to reduce stockpiles at the May sales pace.

Wholesale inventories have been falling since September as the worst financial crisis in seven decades rippled through the economy.

Wholesale inventories are goods held by distributors who generally buy from manufacturers and sell to retailers. They make up about 25 percent of all business stockpiles. Factories hold another third of inventories and retailers hold the rest.

A 1.5 percent drop in inventories of durable goods, items such as autos expected to last at least three years, led the overall decline in May. Inventories of nondurable goods actually rose 0.3 percent.

The overall economy, as measured by the gross domestic product, fell at an annual rate of 5.5 percent in the first three months of this year following a drop of 6.3 percent in the final three months of 2008. That marked the steepest six-month decline in GDP in more than a half-century.

Economists believe that the economy, which has been in a recession since December 2007, was shrinking in the April-June quarter but at a much slower pace.

Analysts are hoping that the economy, helped by the $787 billion economic stimulus package, will actually start growing again in the current July-September quarter although they caution that any rebound will be modest.

They expect unemployment, which hit a 26-year high of 9.5 percent in June, will keep rising in coming months and could near 11 percent before the labor market starts to improve.

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