Today the government released data on November business inventories, which increased 0.4%. The increase was exceeded by a 1.6% gain in sales, resulting in a decline in the inventory-to-sales ratio, which fell to a new record low.
These data are extremely important as they indicate that businesses have been managing the slowing in demand quite well and hence won't need to cut production much in order to correct any unintended buildup of inventories. Decades of economic cycles saw inventories play a major role in the cycles, with businesses taking as many as several quarters to correct for unintended inventory buildups.
This time around there is very little to correct, which means that any pickup in spending would be likely to quickly translate into gains in output, which would act as a catalyst to economic expansion. The problem is spending, though, which is not likely to strengthen for a while. When it does, the economy will have a very strong quarter or two because of the jump that would occur in industrial output.
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Tony Crescenzi Blog Terrible Chain Store Data 1/15/2008 11:08 AM EST This could touch off a vicious cycle of cuts in output, a spike in jobless claims and a big drop in payrolls.
Tony Crescenzi Blog Flipped! LIBOR Below Funds 1/14/2008 2:14 PM EST LIBOR has been dropping steadily all year, and for the first time since 2003, has dipped below the fed funds rate.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market,
first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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