08/14/2012 10:52 EDT | Updated 10/14/2012 05:12 EDT

US businesses boosted stockpiles by slight 0.1 per cent in June as sales plunged 1.1 per cent

WASHINGTON - U.S. companies barely increased their stockpiles in June from May, and sales plunged by the largest amount in more than three years.

Business inventories edged up a slight 0.1 per cent in June after a 0.3 per cent gain in May, the Commerce Department reported Tuesday. Sales fell 1.1 per cent, the sharpest decline since March 2009 when the economy was still in recession.

The small June increase in inventories pushed total business stockpiles up to $1.58 trillion. That's 20 per cent higher than the low reached in September 2009 when businesses were slashing inventories in response to the recession.

Weaker restocking could act as a drag on overall economic growth. When businesses place fewer orders, factory production slows.

The decline in sales reflected decreases in sales by manufacturers, wholesalers and retailers. However, a separate report Tuesday said that retail sales had bounced back in July following three straight monthly declines, a possible sign of a rebound for the overall economy in coming months.

Consumer spending growth slowed to 1.5 per cent in the April-June quarter, down from 2.4 per cent in the first quarter.

That slowdown translated into overall economic growth of just 1.5 per cent in the April-June quarter, below the first quarter's 2 per cent growth and much less than the fourth quarter's 4.1 per cent.

Economists believe growth may improve later this year, but only slightly. Europe edged closer to recession Tuesday after official figures showed the region's output shrank 0.2 per cent in the second quarter of the year, threatening U.S. exports. And the U.S. economy faces a "fiscal cliff" at the end of this year. That's when several large tax cuts expire and a big spending cut is scheduled to kick in.

Economists warn that if the tax increases and spending cuts aren't delayed or reduced, they could push the U.S. economy back into recession.

Wholesale stockpiles account for about 27 per cent of total business inventories. Stockpiles held by retailers make up about one-third of the total and manufacturing inventories represent about 40 per cent.