NEW YORK (CNNfn) - The store of unsold goods at U.S. businesses shrank in June, the government reported Wednesday, offering hope that the beleaguered manufacturing sector eventually will begin to increase production.|
Wholesale inventories fell 0.2 percent in June, the Commerce Department reported, compared with a revised 0.3-percent gain in May. Analysts polled by Briefing.com expected inventories to stay the same.
Meanwhile, sales fell 0.9 percent to $226.83 billion after a 0.5-percent drop the previous month. The sales numbers were pulled down by the durable goods category, which fell 1.3 percent compared with a decline of only 0.2 percent in May.
The stock-to-sales ratio -- a measure of how long it would take to totally deplete stocks at the current sales pace -- was 1.33 in June compared with 1.32 in May. This is the highest ratio since 1.34 in February 1999.
Compared with the surprisingly positive inventory data, the sales data are ominous, since businesses can't reduce inventory if their sales are falling.
"These data indicate that wholesale deliveries to retailers are falling quickly, responding to the slowing pace of retail sales. However, deliveries from manufacturers and imports have not slowed as sharply," said Steven Wood, economist with FinancialOxygen. "Unless retail sales revive, wholesalers will continue to cut their orders from manufacturers and imports, maintaining the downward pressure on the factory sector."
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The manufacturing sector has been hardest hit by a year-long U.S. economic slowdown, shrinking for 12 straight months as businesses and consumers cut back spending and demand for goods falls, leading to hundreds of thousands of job cuts.
The faster businesses can get rid of their inventories, the sooner they can pick up the pace of production and hire more workers.
In order to keep consumers spending despite the layoffs and avoid a recession, the Federal Reserve has cut its target for short-term interest rates six times this year, to 3.75 percent from 6.5 percent. Most economists expect the Fed to cut rates again when it meets Aug. 21 to discuss policy.
-- from staff and wire reports