Wholesale inventories continue to fall more than expected

Wholesalers slashed inventories more than expected in April as businesses struggled to get stockpiles in line with falling sales.

The Commerce Department said Tuesday that wholesale inventories fell 1.4% in April, more than the 1.1% decline that economists expected. It marked the eighth straight month that inventories dropped.

Sales at the wholesale level fell 0.4% in April following a 2.4% drop in March. Sales by wholesalers have fallen in nine of the last 10 months.

The ratio of inventories to sales stood at 1.31, meaning it would take 1.31 months to exhaust total stockpiles at the April sales pace. That ratio stood at 1.32 in March and was 1.12 in April 2008.

The reduction in stockpiles held on shelves and back lots has contributed to the economy's sharp contraction as factories have been forced to slash production in the face of falling demand.

The gross domestic product plunged at an annual rate of 5.7% in the January-March period after falling by 6.1% in the last three months of last year, the largest six-month decline in more than a half-century.

Economists hope that businesses are close to getting their inventories more in line with reduced sales levels. Once that occurs, businesses are expected to start increasing orders which will translate into stronger manufacturing activity.

That increased production is expected to be a key factor helping to end the recession, which began in December 2007 and is now the longest since World War II.

The 1.4% fall in wholesale inventories followed a 1.8% drop in March which was revised from an original estimate of a 1.6% decline.

Many economists believe that overall economic activity is falling at a slower pace of 2% to 3% in the current quarter, with GDP expected to turn slightly positive in the third quarter.

Wholesale inventories are goods held by distributors who generally buy from manufacturers and sell to retailers. They make up about 25% of all business stockpiles. Factories hold another third of inventories and retailers hold the rest.

While consumer confidence has improved a bit in recent months, those gains have not shown up in increased consumer spending, according to reports from many of the nation's largest retail chains.

Excluding retail giant Wal-Mart WMT, May marked the 10th straight month that same-store sales have fallen, according to a tally released last week by Goldman Sachs and the International Council of Shopping Centers.

Luxury chains and department-store operators continued to be the weakest sectors with SaksSKS and Neiman Marcus reporting double-digit sales declines last month.