Washington, DC, Aug. 15—Businesses continued to cut inventories of unsold goods in June even though sales fell by the largest amount in nine years. According to the Commerce Department, supplies on shelves and backlots declined by a seasonally adjusted 0.4% in June, the largest drop in three months. That came after businesses pared inventories by 0.2% in May. Inventories have fallen for five months in a row.

Sales, however, plummeted by 1.4% in June, after showing a 0.9% increase the month before. June's sales decline marked the largest drop since a 1.5% 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.

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%, following a 0.6% drop the month before. But sales in June plunged by 2.8%, after a 2.4% increase.

Retailers' inventories decreased by 0.3%, after being flat in May. Sales slipped by 0.1%, erasing a 0.1% advance the month before. At wholesalers, inventories edged down 0.2%, following a 0.3% rise. Sales fell by 0.9%, after a 0.5% decline. Automobile dealers' inventories dipped by 0.2% in June, following a 0.3% gain in May.

Copyright 2001 Floor Focus Inc