Inventories up 0.4 percent, business sales flat

Wednesday, March 14th 2001, 12:00 am
By: News On 6

WASHINGTON (AP) _ Inventories of unsold goods rose 0.4 percent in January as businesses struggled to trim excess supplies to bring them back in line with demand. Sales were flat.

The advance boosted inventories of goods on shelves and backlots to a seasonally adjusted $1.22 trillion, the Commerce Department reported Wednesday. At the same time, sales showed no change at $896.6 billion.

The increase in inventories was the largest since a 0.7 percent rise in October and was slightly bigger than the 0.3 percent advance many analysts were expecting.

The inventory-to-sales ratio, which measures how long it would take businesses to exhaust their inventories at January's sales pace, rose to 1.37 months, suggesting that businesses were still holding excess supplies. January's ratio was the highest since March 1999 when it also stood at 1.37 months.

Consumers' and businesses' appetite for goods has slumped as the economy has slowed. To work off inventories and bring them more in line with demand, companies are laying off workers, reducing shifts to curb production and deeply discounting merchandise.

Federal Reserve Chairman Alan Greenspan, in his twice-a-year economic report to Congress on Feb. 28, attributed much of the economy's weakness to an effort by businesses to cut back quickly on production in the face of falling sales.

Although companies are working hard to match inventories with demand, Greenspan said, the process may take more time.

In January, inventories at factories rose 0.7 percent to $496.3 billion after a 0.1 percent decline the month before. Sales in January fell 1.1 percent to $368 billion, after a 0.4 percent drop.

Retailers' inventories grew by 0.6 percent to $400.8 billion, up from a 0.2 percent rise. Sales rose 1.3 percent to $275 billion after a 0.2 percent gain.

At wholesalers, inventories declined 0.3 percent to $327.7 billion, following a flat December. Sales edged up 0.2 percent to $253.6 billion, after an 0.8 percent increase.

The Federal Reserve slashed interest rates twice in January, totaling a full percentage point, in an effort to keep the ailing economy from slipping into a recession.

Many analysts expect Fed policy-makers will cut interest rates a third time, possibly by another half-point, when they meet next week.

The economy slowed to an annual rate of growth of just 1.1 percent in the last three months of 2000, the weakest pace in more than five years. The slowdown has been demonstrated in various ways.

Manufacturing activity has fallen. Consumer confidence has plunged. Some of the country's biggest names, from Sears to Motorola, are laying off thousands of workers to cope with the economic slowdown.

In December, all inventories showed no change and sales ticked up 0.1 percent, according to revised figures. The government had previously reported that both inventories and sales rose a tiny 0.1 percent for the month.