honoluluadvertiser.com

Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Saturday, April 14, 2001



U.S.sales continue to fall

Bloomberg News Service

WASHINGTON — U.S. business sales fell more than inventories in February, suggesting sluggish production in months ahead and an economy struggling to regain its footing.

Sales fell 0.3 percent, led by declines at manufacturers and wholesalers, after falling 0.2 percent in January, the Commerce Department said. Inventories dropped 0.2 percent, 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 1.37 months in February, the longest since January 1999. The February figures suggest inventories probably grew in the first quarter at the slowest pace in five years and weak sales point to an economy having a tough time expanding.

"Businesses are doing their best to try and reduce their inventories as fast as they can," said Joel Naroff, president of Naroff Economic Advisors in Holland, Pa. "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 a rebound in the economy may be slow in coming. Still, businesses are making some progress in reducing inventories that had gotten too large.

Stockpiles probably grew by $8.5 billion at an annual rate in the first quarter, the weakest pace since the same three months in 1996, when they rose at a $5.6 billion rate, according to statistics compiled by Bloomberg News. In the fourth quarter, inventories grew at a $55.7 billion rate.

"The inventory correction process is currently under way but still has a number of months to run," said Steve Wood, chief economist at FinancialOxygen Inc. in Walnut Creek, Calif. Should consumer spending weaken further, as the March retail sales figures suggest, "overstocked shelves won't be cleared as quickly and production is likely to remain weak for the foreseeable future," Wood said.

That's why analysts expect Federal Reserve policy makers to reduce interest rates by their May 15 policy meeting. The economy grew at a 1 percent annual rate in the fourth quarter, the slowest in 5 1/2 years, and probably expanded at that pace or slower in the first three months of 2001, economists and Fed officials have said. Fed officials have cited excess inventories as one of the main reasons for the economy's slowdown.

Central bankers, lowered their benchmark overnight interest rate in three half-percentage-point steps since Jan. 3 to preserve the 10-year-old economic expansion. The overnight rate now stands at 5 percent, the lowest since August 1999.

February retail inventories, reported for the first time yesterday, fell 0.4 percent after rising 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 offered discounts to boost sales. The decrease in auto stockpiles was the largest since a 2.1 percent decline in June 1998. General Motors Corp. raised rebates and DaimlerChrysler AG introduced $2,000 cash-back incentives on some trucks. Auto sales rose 0.3 percent.

"Manufacturing, especially of motor vehicles, is going to turn the corner soon because the sales have been really strong," said Naroff.

Ford Motor Co., the world's second-largest automaker, has already boosted production plans. It expects to make 1.25 million cars and trucks in the second quarter, up from 1.06 million in the first.

Furniture store inventories declined 1.7 percent in February after rising 0.2 percent a month earlier. Sales at furniture stores fell in February.

At department and other general merchandise stores, inventories rose 0.3 percent in February as sales fell. Sears, Roebuck & Co., the biggest U.S. department- store company, and May Department Stores Co., owner of Hecht's and Lord & Taylor chains, all reported that February sales dropped.

Stockpiles at manufacturers, which account for almost half the report, fell 0.1 percent in February after increasing 0.5 percent the month before. Sales declined 0.5 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. Companies including Palm Inc., the biggest maker of handheld computers, and Cisco Systems Inc., the No. 1 maker of computer-networking gear, have reported a rise in inventories as customers delay orders.

"All the marketing variables we can affect to move inventory and demand, we are working on," Satjiv Chahil, Palm's chief marketing officer, said on Wednesday. The company said inventory this quarter may triple to $300 million from $102.5 during the first quarter.