Behind the Numbers: The Inventory Drop

WASHINGTON (TheStreet) -- Wholesale inventories fell for the 11th straight month even as sales increased, which could point to retailers being unable to meet demand as Christmas nears.

The Commerce Department announced on Friday that wholesale inventories declined 1.4% in July, more than the 1% analysts expected.

Sales, on the other hand, inched up 0.5% during the month, the fourth straight monthly gain.

The domino effect: retailers may sense that they need to increase their inventory levels, which would of course boost production at factories.

The inventory-to-sales ratio in July was 1.23, meaning it would take 1.23 months to exhaust stockpiles.

Already this week Lululemon Athletica(LULU Quote), a yoga-inspired apparel company, said it saw its same-store sales in the second quarter slip 2% because it could not meet the growing demand of its shoppers.

Meanwhile, across the board, retailers from Wal-Mart Stores(WMT Quote) to women's retailer Talbots(TLB Quote) have been tightening inventory to offset falling customer demand.

-- Reported by Jeanine Poggi in New York

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