NEW YORK (CNN/Money) - Wholesale inventories fell in the United States in February, the government said Monday, the ninth straight month of a record inventory reduction at the end of the nation's first recession in a decade.

Inventories fell 0.7 percent in February to $285.1 billion, the Commerce Department reported, after falling a revised 0.5 percent in January. Economists surveyed by Briefing.com expected inventories to be unchanged in February.

The department also said sales rose 0.8 percent in February to $227 billion after rising 1.2 percent in January.

U.S. stock prices were lower in early trading, dragged down by an Iraqi oil embargo and an earnings warning from IBM Corp. (IBM: down $10.59 to $86.66, Research, Estimates) Treasury bond prices were mixed.

The drop in inventories could hurt first-quarter growth in gross domestic product (GDP), the broadest measure of the U.S. economy. Some economists have suggested inventory rebuilding could boost GDP to more than 5 percent growth in the quarter. GDP grew just 1.7 percent in the fourth quarter of 2001 after shrinking 1.3 percent in the third quarter.

The report is the latest indication that the long-suffering manufacturing sector is still working to recover. The Institute of Supply Management's index of manufacturing activity has risen two straight months following 18 months of decline, a crippling recession arising mostly from a drastic slowdown in business spending that followed a spending bubble in the late 1990s.

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Once the bubble burst, companies found themselves with lots of factory improvements and the ability to produce more goods, but nobody wanted to buy the goods they'd already made. As a result, companies have spent months getting rid of their unsold inventories. When that process has run its course, companies will be able to ramp up production again.

But there's still no guarantee that demand will increase enough to merit a big boost in production, and companies likely will be cautious about raising production and hiring new workers.