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September 14, 2009

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US firms cut wholesale inventories

UNITED States businesses reduced inventories at the wholesale level for a record 11th consecutive month in July, although sales rose by the largest amount in more than a year, sparking hope for better days ahead.

Economists expect that some modest restocking triggered by the higher sales helped boost the economy out of recession in the current quarter. Some analysts said the economy could rebound to growth near 4 percent, after it fell at a 1 percent rate in the April-June period.

The US Commerce Department reported last Friday that wholesale inventories declined 1.4 percent in July, more than the 1 percent drop economists expected. That decline followed a 2.1 percent fall in June and compares to the 1.7 percent drop originally reported.

Sales at the wholesale level rose 0.5 percent in July, the fourth straight increase and the biggest gain since a 2 percent jump in June 2008.

Jennifer Lee, an economist at BMO Capital Markets, said the rebound in sales was encouraging and should help convince businesses to restock shelves and back lots. That swing in inventories should in turn help boost the economy out of a recession in the current quarter.

The overall economy, as measured by gross domestic product, will grow at a 3.8 percent annual rate in the current July-September period, Lee forecast.

The economy posted declines of 5.4 percent and 6.4 percent in the fourth and first quarters respectively, the worst performance in a half-century.

"For the second half of this year, things are looking better than they were a few months ago with activity being helped by stimulus efforts such as the Cash for Clunkers program," Lee said.

Economists are worried, however, that the economy will slip back to weaker growth beginning next year as the impact of various stimulus programs dims and the unemployment rate keeps rising, depressing consumer incomes and their willingness to spend.

More positive news came on Friday when consumer confidence, as measured by the University of Michigan-Reuters survey, rose to a reading of 70.2 early this month, compared with 65.7 last month.

"With hope comes more spending and with more spending comes more production," Lee said.


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