Sept. 20, 2004--Business inventories rose for the second straight month in July, outpacing growth in sales.

The U.S. Department of Commerce on Wednesday reported that seasonally adjusted manufacturers' and trade inventories hit $1.247 trillion in July, a monthly gain of 0.9%, and also revised upward June inventory gains to 1.1% from the previously reported 0.9 percent. Automotive inventories posted the strongest monthly gain, rising 1.8%, while retail clothing and accessories slipped 1.1%, representing the largest decline.

The report also showed that business sales reached $946.2 billion, up 0.6% from June and 9.9% from July 2003. The revised June figures showed sales posting a 0.2% gain.

The inventories-to-sales ratio for July reached 1.32, meaning that it would take slightly under a month and a third for the present rate of sales to burn through the current level of inventories. The July figure was up slightly from June but down from one year ago.

While inventory gains generally point toward increased purchasing and confidence in the economy, they can sometimes be tricky to interpret as they can also result from stagnant sales.

"We did see a slowdown in retail sales, and some of the inventory gains might be that retailers and their customers eased back a bit," said William Dunkelberg, chief economist for the National Federation of Independent Business. "But we've seen plans to set inventories at a near record levels for months, and we think businesses are finally succeeding in building that inventory. We're optimistic about future growth, and I think at this point it's probably a good thing. It will only be bad if business owners are making a bad forecast."

Gains in retail sales, which totaled 0.7% in July, narrowly outpaced retail inventory gains of 0.6% during the same period. Wholesale inventories, however, posted a gain of 1.3%, growing at a faster rate than wholesale sales, which were up 0.5%.