WASHINGTON (AP) â€” Inventories held by businesses rose for a sixth straight month in June but sales declined for a second month in a row.
Inventories increased 0.3 percent in June, the Commerce Department reported Friday. But sales fell 0.6 percent following an even larger 1.2 percent sales decline in May.
The weakness in sales raises concerns about whether companies will continue boosting inventories. Inventory rebuilding had been an important source of strength driving the economic rebound.
Businesses had been rebuilding their inventories in recent months after slashing them aggressively during the recession. But if consumer demand weakens further, businesses could start cutting back. That would mean fewer orders to U.S. factories and weaker output for manufacturers.
The consecutive declines in sales in May and June followed 13 straight increases in total business sales. The June decrease reflected less demand for manufacturers, wholesalers and retailers. A separate report Friday showed that sales at the retail level rebounded in July but the strength was concentrated in higher demand for autos and gasoline.
The 0.3 percent rise in inventories during June followed an increase of 0.2 percent in May. It reflected a rise in retail inventories of 0.8 percent and an increase of 0.1 percent in wholesale inventories. Stockpiles held by manufacturers slipped 0.1 percent in June.
The inventory to sales ratio edged up to 1.26 in June from 1.25 in May. That means it would take 1.26 months to exhaust inventories at the June sales pace.
That ratio had hit a high of 1.45 in early 2009 as businesses were caught with unwanted inventories during the recession. That prompted a massive liquidation of inventories through most of 2009 as businesses struggled to get costs under control.
When businesses began building up their inventories at the end of last year, that helped spur overall economic growth. The economy, as measured by the gross domestic product, grew at an annual rate of 5 percent in the final three months of 2009 with about half of that growth coming from a swing in inventories.
The GDP grew at a 3.7 percent rate in the first quarter of this year and a 2.4 percent rate in the April-to-June quarter. Inventories still contributed to the growth rates but by a smaller amount than at the end of last year.