July Inventories Drop, Sales Rise

In a nice little blip of good news, July inventories dropped and sales rose, according to numbers released moments ago by the Commerce Department, fueling hopes of the beginning of a recovery.

In July, businesses slashed their inventories 1 percent, slightly more than expected, marking the 11th straight month of inventory reduction.

At the same time, sales rose by just the tiniest amount -- 0.1 percent -- after rising 1.1 percent in June. Statistically meaningless, however, it marks the first back-to-back monthly increases in sales in a year.

This sales number, by the way, is different from retail sales, which was reported today.

In a recession, businesses reduce inventory any way they can; typically by discounting prices. This means factories shut down.

Once, however, businesses get their inventory overhang down to a workable amount -- meaning, their shelves are actually starting to a look a little bare -- they will start putting orders back in to factories, which will start up again and hire back laid-off workers.

-- Frank Ahrens
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