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Inventories Rise in June at Fastest Clip in 3 Months : May Signal an End to Businesses Holding Back on Stocks, Analysts Say

August 15, 1986|Associated Press

WASHINGTON — Inventories held by American businesses rose in June at the fastest clip in three months while business sales rebounded after a huge downturn, the government reported Thursday.

The Commerce Department said June sales hit $423.6 billion, up 0.5% from May, when sales had plummeted 1.6%.

Inventories held by businesses rose 0.4% following a 0.3% decline in May.

Analysts said the advance in inventories in June may be signaling the end of a period when businesses cut back sharply on inventories because of a huge oversupply.

This inventory reduction was a major factor holding back overall economic growth during the April-June quarter, a period when the economy expanded at an annual rate of just 1.1%, the weakest growth since the end of the last recession.

Maury Harris, chief economist for Paine Webber, said the new report indicated that businesses now believed that their inventories were under better control.

3.3% Rise in GNP Predicted

"With a few exceptions, inventories are in OK shape, and in the second half of the year, a cutback in inventory building will not hurt us like it did in the second quarter," he said.

Harris predicted that the gross national product would expand at an annual rate of 3.3% in the final six months of this year, up substantially from the first half but still below the Reagan Administration's forecast of 4% growth.

One segment expected to be a drag on the economy, at least in the current quarter, is the auto industry. Auto makers have already announced production cutbacks in an effort to reduce inventory levels, which are still close to the record levels hit earlier this year.

The new report said inventories held by auto dealers were up 1.6% in June over May and were 16.7% above where they were a year ago.

Robert Ortner, undersecretary of commerce, said that even with the problem with autos, there was little sign of the kind of dangerous inventory buildups that normally signal the beginning of a recession.

"This report basically shows that inventories are in good condition," he said. "This part of the economy should not be a drag on the economy as final demand picks up."

The 0.4% increase in June left total inventories at $589 billion after adjusting for seasonal factors. The inventory advance was led by a 1% rise in stockpiles held by wholesalers. Inventories held at the retail level rose 0.6%, while inventories held by manufacturers were basically unchanged.

The 0.5% increase in sales in June came at the wholesale level, where demand for goods rose by 1.8%. Sales at the retail level fell 0.1%, while sales at the manufacturing level were basically unchanged from May.

In a report Wednesday, the government said retail sales in July rose a tiny 0.1%, erasing the June deficit.

With inventories and sales rising at about the same rate, the measure of how long it would take to exhaust inventories on hand at the current sales pace remained unchanged in June at 1.39 months. A year ago, the inventory-to-sales ratio stood at 1.38 months.

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