) -- Inventory levels had their steepest drop of the year in August, suggesting that production may soon ramp up to replenish supplies. While that's encouraging, investors must take a closer look at the largest contributor: car sales.
The biggest decline came from auto inventories, which sank 7.9% in August from July. Car sales spiked 7.8% that month, the highest jump this year. Without a doubt, the government's Cash for Clunkers program helped fuel sales, reducing the number of cars on dealer lots.
Investors shouldn't consider
screaming buys based on this data. Now that Cash for Clunkers is over, new cars sales should slide to a more sustainable level. While the jump was a nice boost for struggling automakers, a slower recovery should be expected after the calamitous events of last year.
A bright spot on the report came from retail sales, excluding cars, which increased 1.1% in August, the biggest increase this year. The gain suggests that the American consumer is relaxing his death grip on his wallet. The impact of other economic stimulus programs is unclear, but few have been as wildly successful as Cash for Clunkers. That means sales of other goods grew with less help from incentives.
Sales of clothing, general merchandise and department stores increased 1.1% or more, making them the top performing categories other than cars. This may brighten the horizons of retailers such as
, but it's important to remember that one month of increases does not a recovery make.
While today's economic numbers are a positive, expectations should be tempered. Recovery periods are often just as dismal as the recessions they follow.
-- Reported by David MacDougall in Boston.
Prior to joining TheStreet.com Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.