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Businesses cut inventories 1.3 percent in Dec.
2009-02-12
WASHINGTON - U.S. businesses slashed inventories in December by the biggest amount in seven years as they coped with plunging sales in a dismal holiday season. The Commerce Department reported Thursday that inventories fell 1.3 percent in December, far worse than the 0.9 percent decline analysts expected. It was the largest cut since the record 1.5 percent in October 2001. It also marked the fourth straight month that companies cut their stockpiles, matching a similar stretch of reductions that ended in August 2003. The trend has prompted concerns that the economic downturn will gain intensity if businesses continue to pare inventories, potentially triggering further cutbacks in production and more layoffs. The latest news on the employment front Thursday showed nearly 5 million Americans continuing to draw jobless benefits late last month, and new requests again exceeding 600,000 as companies continue to lay off scores of workers. The Labor Department said the number of initial jobless benefit claims dropped to a seasonally-adjusted 623,000, from an upwardly revised figure of 631,000 the previous week. The 631,000 new claims was the highest tally since October 1982, when the economy was emerging from a steep recession, though the labor force has grown by about half since then. The December cut in inventories on shelves and back lots followed a plunge in November that was revised higher to 1.1 percent from 0.7 percent. On Tuesday, the Commerce Department reported that wholesale inventories -- goods held by distributors that generally buy from manufacturers and sell to retailers -- fell 1.4 percent in December, the biggest amount in nearly 17 years and nearly double analysts' expectations. Wholesale inventories make up about 25 percent of all business stockpiles; factories hold another third and the rest is held by retailers. Sales at the wholesale level dropped 3.6 percent in December, slightly steeper than analysts' expectations, but less than November's record 7.3 percent drop. Because sales are falling even faster than the sharp cut in inventories, it is taking longer for distributors to clear out excess stockpiles. Thousands of layoffs are being announced every week by well-known companies like Macy's Inc., Pfizer Inc., Estee Lauder Cos., Caterpillar Inc., Microsoft Corp. and Home Depot Inc. This week alone, General Motors Corp. said it would cut 10,000 salaried jobs, or 14 percent of its white-collar employees, and FedEx Corp. said it is eliminating 900 positions.
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