WASHINGTON – U.S. businesses left their stockpiles unchanged in July while sales declined slightly.

The Commerce Department says inventories were flat in July after rising a modest 0.2 per cent in June. Sales dropped 0.1 per cent after a big 1 per cent gain in June.

Weak inventory restocking has been a drag on growth this year, trimming overall growth by 1.3 percentage points in the second quarter. Economists say businesses are close to getting inventories back in line with sales and they are forecasting inventory cutbacks will represent only a small drag on growth in the current quarter.

In July, inventories held by manufacturers rose 0.1 per cent while retailers reduced stockpiles by 0.3 per cent and inventories at the wholesale level were unchanged.

Sales were up a slight 0.1 per cent in July at the retail level but wholesalers saw sales drop 0.4 per cent while sales by manufacturers were down 0.2 per cent in July.

In a separate report Thursday, the government said that retail sales fell 0.3 per cent in August.

The overall economy grew at a lacklustre annual rate of 1.1 per cent in the April-June quarter, held back by the major drag from weak inventory restocking. But economists are optimistic for a rebound in the current quarter with some forecasting growth, as measured by the gross domestic product, will top 3 per cent in the third quarter.