Business cut back on stockpiles as sales fell again

WASHINGTON – Businesses reduced their stockpiles for a second straight month in February, while sales fell for a seventh month.

Business inventories dropped 0.1 per cent, matching the decline in January, the Commerce Department reported Wednesday. Sales fell 0.4 per cent in February after an even bigger 0.8 per cent decline in January. Sales have been heading south since August.

The weakness in inventory building has been holding back overall growth. It trimmed growth by 0.2 percentage point in the fourth quarter, and economists expect the slowdown in stockpiling to subtract an even larger 0.6 percentage point from first quarter growth.

The overall economy, as measured by the gross domestic product, grew by just 1.4 per cent in the fourth quarter. Economists are forecasting growth to come in below 1 per cent in the first quarter.

U.S. manufacturers have seen exports fall as weakness in major overseas markets cuts into sales. American producers have also been hurt by a rising value of the dollar which makes U.S. goods more expensive in foreign markets.

There are hopes that weak foreign demand will be offset by strength in domestic demand, fueled by rising consumer spending.

However, a separate report Wednesday showed that retail sales fell 0.3 per cent in March as Americans cut back on car purchases. Sales had been flat in February and down in January. Consumer spending accounts for 70 per cent of economic activity.