Business Inventories in U.S. Fall 0.2%, Most in Three Years

By Shobhana Chandra

Nov. 14 (Bloomberg) -- Inventories at U.S. businesses fell in September by the most in three years as companies tried to adjust to slumping sales.

The 0.2 percent drop in the value of unsold goods at factories, retailers and wholesalers was larger than projected and the biggest since July 2005, the Commerce Department said today in Washington. Sales declined 2 percent following a 2.2 percent decrease in August.

Companies had enough goods on hand to last 1.29 months at the current sales rate, the most since January 2007, the report showed. Firms will redouble efforts to slash stockpiles after another Commerce report today showed retail sales plunged 2.8 percent in October, the most since records began in 1992.

``We're going to see leaner orders,'' Guy LeBas, chief economist at Janney Montgomery Scott LLC in Philadelphia, said before the report. ``With credit tight, there's very little demand and very little money that companies can spend to finance inventories.''

Inventories were forecast to fall 0.1 percent, according to the median estimate in a Bloomberg News survey of 50 economists. Projections ranged from an increase of 0.5 percent to a decline of 0.4 percent. The August increase in stocks was revised down to 0.2 percent from 0.3 percent.

The decline in October retail sales, reported separately, was broad based with decreases in automobiles, furniture, electronics and clothing. The drop in autos was the biggest in three years and service station receipts declined by the most on record, partly reflecting the slump in gasoline prices.

Sales Slump

Inventories at retailers, the only part of today's release not previously reported, increased 0.2 percent and sales dropped 1.5 percent. That pushed the inventory-to-sales ratio up to 1.5 months from 1.48.

Stockpiles at auto dealers decreased 0.3 percent as sales slumped 4.8 percent. Automakers are pulling back as the credit crisis hurts demand for expensive goods. Ford Motor Co. on Nov. 12 said it will have temporary shutdowns at 9 North American plants this quarter to reduce production.

Retail inventories account for about a third of all business inventories. Factory stockpiles, which also account for a third, fell 0.7 percent in September. Wholesale stockpiles, which make up the rest, dropped 0.1 percent.

Declines in consumer spending will cause the economy to shrink this quarter and in the first three months of 2009, according to the median estimate in a Bloomberg monthly survey conducted from Nov. 3 to Nov. 11. Combined with last quarter's contraction, it would be the longest slump since 1974-75.

Gap Inc., the largest U.S. clothing retailer, is among chains that plan to control expenses and inventories after sales plunged in October.

We ``will continue to use inventory and cost management to offset what we anticipate will be a challenging holiday season,'' Chief Financial Officer Sabrina Simmons said in a statement last week.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net Courtney Schlisserman in Washington at cschlisserma@bloomberg.net