Businessweek Archives

Lower Inventories Might Not Be Much Cause For Cheer


Economic Trends

LOWER INVENTORIES MIGHT NOT BE MUCH CAUSE FOR CHEER

Some economists predict that the recent sharp drop in manufacturing inventories will spark a strong upturn in output. Charles Lieberman of Chemical Securities Inc., however, is skeptical. Lieberman points out that the decline in factory inventories in recent months--and years--has occurred entirely in stocks of raw materials and work in process. By contrast, inventories of unsold finished goods have increased to their highest level in the current business cycle and are plentiful at factory, wholesale, and retail levels.

The distinction is critical, says Lieberman. Although stocks of finished products are quickly affected by shifts in final demand, inventories of raw materials and other unfinished goods mainly reflect the current rate of production. Thus, he argues that the recent decline in unfinished-goods inventories suggests that the current pace of production is slowing, while the high level of finished-goods stocks "implies that there is little apparent need to boost output to replenish stocks."GENE KORETZ


Cash Is for Losers
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus