Sales increased 0.4% in June, extending May's increase of the same amount, but wholesale inventories tumbled a steep 1.7%, larger than May's substantial 1.2% decline.
As a result, the closely-followed inventories-to-sales ratio, which measures how many months it would take take businesses to liquidate stockpiles, fell from 1.28 to 1.26.
What does all of this tell us?
Despite the gradual recovery in sales that began in April, production at the nation’s factories is not yet picking up as companies continue to work off excess goods left over from the near collapse in demand that occurred following the credit crisis last fall.
And falling inventories have been part of what’s been holding back GDP. However, we will eventually get to the point when items on hand will become sparse, and manufacturers will find it necessary to ramp up production, providing an extra kick to economic activity.
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