Washington, April 13 (Bloomberg) -- U.S. business sales fell more than inventoriesin February, suggesting sluggish production in months ahead and an economystruggling to regain its footing. Sales fell 0.3 percent, led by declines at manufacturers and wholesalers, after falling0.2 percent in January, the Commerce Department said. Inventories dropped 0.2percent, the first decrease in more than two years, after a 0.1 percent increase. The length of time merchandise sat on shelves and in warehouses stayed at 1.37months in February, the longest since January 1999. The February figures suggestinventories probably grew in the first quarter at the slowest pace in five years andweak sales point to an economy having a tough time expanding. ``Businesses are doing their best to try and reduce their inventories as fast as theycan,'' said Joel Naroff, president of Naroff Economic Advisors in Holland,Pennsylvania. ``The only problem is, they're running a race they're not winning.'' A report yesterday showed retail sales fell 0.2 percent in March, suggesting arebound in the economy may be slow in coming. Still, businesses are making someprogress in reducing inventories that had gotten too large. Stockpiles probably grew by $8.5 billion at an annual rate in the first quarter, theweakest pace since the same three months in 1996, when they rose at a $5.6 billionrate, according to statistics compiled by Bloomberg News. In the fourth quarter,inventories grew at a $55.7 billion rate.
`Inventory Correction'
``The inventory correction process is currently underway but still has a number ofmonths to run,'' said Steve Wood, chief economist at FinancialOxygen Inc. inWalnut Creek, California. Should consumer spending weaken further, as the Marchretail sales figures suggest, ``overstocked shelves won't be cleared as quickly andproduction is likely to remain weak for the foreseeable future,'' Wood said. That's why analysts expect Federal Reserve policy makers to reduce interest ratesby their May 15 policy meeting. The economy grew at a 1 percent annual rate in thefourth quarter, the slowest in 5 1/2 years, and probably expanded at that pace orslower in the first three months of 2001, economists and Fed officials have said. Fedofficials have cited excess inventories as one of the main reasons for the economy'sslowdown. Central bankers, lowered their benchmark overnight interest rate in three half-percentage-point steps since Jan. 3 to preserve the 10-year-old economicexpansion. The overnight rate now stands at 5 percent, the lowest since August1999.
Autos and Furniture
February retail inventories, reported for the first time today, fell 0.4 percent afterrising 0.2 percent in January, reflecting a decline at auto dealers and furniture stores.Sales at retailers were unchanged after rising 1.3 percent in January. Among auto dealers, inventories fell 1.5 percent in February, as carmakers offereddiscounts to boost sales. The decrease in auto stockpiles was the largest since a2.1 percent decline in June 1998. General Motors Corp. raised rebates andDaimlerChrysler AG introduced $2,000 cash-back incentives on some trucks. Autosales rose 0.3 percent. ``Manufacturing, especially of motor vehicles, is going to turn the corner soonbecause the sales have been really strong,'' said Naroff. Ford Motor Co., the world's second-largest automaker, has already boostedproduction plans. It expects to make 1.25 million cars and trucks in the secondquarter, up from 1.06 million in the first. Furniture store inventories declined 1.7 percent in February after rising 0.2 percent amonth earlier. Sales at furniture stores fell in February.
Department Stores
At department and other general merchandise stores, inventories rose 0.3 percent inFebruary as sales fell. Sears, Roebuck & Co., the biggest U.S. department- storecompany, and May Department Stores Co., owner of Hecht's and Lord & Taylorchains, all reported that February sales dropped. Stockpiles at manufacturers, which account for almost half the report, fell 0.1percent in February after increasing 0.5 percent the month before. Sales declined0.5 percent after plunging 1.6 percent in January. The latest worry for manufacturers has been a buildup in stockpiles of chips,telecommunications equipment and other computer-related goods. Companiesincluding Palm Inc., the biggest maker of handheld computers, and Cisco SystemsInc., the No. 1 maker of computer-networking gear, have reported a rise ininventories as customers delay orders. ``All the marketing variables we can affect to move inventory and demand, we areworking on,'' Satjiv Chahil, Palm's chief marketing officer, said on Wednesday. Thecompany said inventory this quarter may triple to $300 million from $102.5 during thefirst quarter. In other categories, wholesale inventories, which make up about one fourth of thebusiness inventories report, fell 0.1 percent in February after declining 0.4 percent inJanuary. Sales fell 0.2 percent after rising 0.1 percent a month earlier.