Sales of manufactured products fell 0.7 percent in January, the largest drop in almost two years, the Commerce Department said yesterday.

At the same time, unsold inventories rose 0.4 percent to a level of $568.4 billion, compared with an increase of 0.2 percent in December and November.

The decline in sales followed a 0.1 percent drop in December and November.

Economists said they were not very worried about the decline in sales because it was more a reflection of the slowdown late last year than an indicator of future economic activity. They also said many businesses are trying to work down inventories accumulated during last year's slowdown.

Inventories at the retail level were higher than merchants desired late last year, and that overstocking has finally wound its way down to the factory level, said Edwin Warren, an economist at Chase Econometrics. However, retail sales that were weak in January strengthened last month, suggesting inventories may reach lower levels and sales of manufactured products could improve, he said.

Warren said he is worried about the decline in sales of machinery, which "very likely is caused by imports taking an increasing share of those markets."

Equipment used to expand plant capacity has never completely rebounded from the recession, Warren said. "A lot of that demand filtered toward imports." Part of the problem also could be that domestic demand for capital goods could be declining. If the weakness in the capital goods sector persists, it could later result in a slowdown in durable goods sales, Warren said.

The January decline in sales was the largest since sales plunged 0.9 percent in February 1983, Commerce said. Sales by manufacturers fell 1.7 percent, and those of wholesalers declined 0.1 percent. Retail sales in January rose 0.5 percent.

The inventory buildup was largest at the retail level, where stocks grew 1.2 percent. Inventories increased 0.6 percent at the wholesale level and declined 0.2 percent at the manufacturers' level, Commerce said.

The inventory-to-sales ratio rose to 1.37 from 1.35 in December. This means it would take 1.37 months to get rid of inventories on shelves at the pace of sales in January.