The continuing strength of retail sales helped push business inventories down 0.1 percent in June, indicating that sales are outpacing production of goods, the Commerce Department said yesterday.

Commerce economists credited a 2.1 percent increase in June sales for the record low inventory-to-sales ratio of 1.36 months of supply in warehouses and with wholesalers, Commerce said.

"U.S. businesses are accelerating ordering and production to accommodate stronger than expected sales while avoiding digging still deeper into their inventories," said Commerce Secretary Malcolm Baldrige. "July's sharp increase in employment is one indicator of this effort to achieve better balance between production and sales."

The nation's employment level in July increased by 500,000 workers over June levels, an indication that third-quarter economic activity would be large. Unemployment also declined from 10 percent in June to 9.5 percent in July after reaching a high of 10.8 percent in December.

Yesterday, the Labor Department said that initial claims for state unemployment insurance totaled 371,000 during the week ending July 30, the lowest weekly figure since April 18, 1981, and 16,000 less than the prior week in July.

Generally during a business recovery, manufacturers increase production and inventories grow, in contrast to recession periods, when businesses use up inventories rather than buy new goods. In June, businesses attempted to build up their inventories, but brisk sales depleted them, a Commerce Department spokesman said.

Inventories "didn't fall that much," the Commerce spokesman said. "The inventory liquidation has stopped. There's usually a stage where they start adding inventory. They were trying to add inventories but the sales were too strong."

Several economists have said that based on increasing retail sales, growth in output should continue at a brisk rate. Although retail sales slowed slightly in July after four months of gains, economists said the decline did not foretell an end to the recovery. Although sales improved for food, furniture and appliances, those for automobiles, building materials and department and general merchandise goods declined, Commerce said this week.

Still, July sales declined less than 0.1 percent from June levels.

The value of inventories in June was $505 billion, $670 million less than in May, Commerce said. The June decline followed a revised rise of $862 million, or 0.2 percent, in May to an adjusted $505.66 billion.

June business sales rose 2.1 percent to $371.6 billion after a $12.71 billion increase the previous month to $364.12 billion, Commerce said.

Manufacturers' and wholesalers' inventories each dropped 0.4 percent in June, while those for retailers increased 0.6 percent, Commerce said.

"We expect an inventory build to occur later this year," said Michael Cebry, an economist for Data Resources Inc.