updated 2/12/2010 10:13:12 AM ET 2010-02-12T15:13:12

Businesses reduced inventories in December, a sign that they remain cautious about the strength and durability of the economic recovery.

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The Commerce Department said Friday that businesses trimmed stockpiles by 0.2 percent in December, a weaker performance than the 0.2 percent gain that economists had expected. Total business sales rose 0.9 percent in December following a 2.4 percent increase in November.

The hope is that further gains in sales will convince businesses to make sustained increases in their inventories, a development that would boost factory production and help support a recovery from the deepest recession since the 1930s.

Businesses increased inventories by 0.5 percent in November and 0.3 percent in October, two monthly gains that followed 13 consecutive declines in inventories as companies struggled to control costs during the recession by trimming their stockpiles.

It was this slowdown in the pace of inventory reductions that contributed nearly two-thirds of the growth in the overall economy in the fourth quarter as measured by the gross domestic product.

The GDP shot up at an annual rate of 5.7 percent in the October-December period, the strongest showing in six years. The concern is that the boost from inventories will be temporary and GDP will slow significantly in coming quarters if consumer demand falters in the face of still-high unemployment.

For December, the 0.2 percent decline in total inventories reflected a 0.1 percent drop in inventories held by manufacturers and a 0.8 percent decline in inventories held by wholesalers. Retail inventories were unchanged during the month.

Wholesalers hold 25 percent of all inventories with factories holding about one-third and retailers holding the rest.

The 0.9 percent sales gain in December reflected a 1.9 percent jump in sales by manufacturers and a 0.8 percent rise in sales by wholesalers with sales at the retail level falling by 0.1 percent. A separate report Friday showed that retail sales rose by 0.5 percent in January, a better-than-expected showing.

The reduction in inventories and the rise in sales in December left the ratio of inventories to sales at 1.26 in December, meaning that it would take 1.26 months to deplete existing inventories at the December sales pace. That compared to a 1.27 inventory-to-sales ratio in November.

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