Rebound in Orders in Coming Months Likely to Be Strong

Earlier in the year, University of Chicago's Casey Mulligan wrote in the New York Times' Economix Blog that there is nothing unusual about this recession's decline in real investment, compared to other postwar recessions.

His figures are right, but as pointed out in Atlanta Fed's macroblog, once investory investment is taken out, and thus focusing on fixed investment alone, this recession has indeed been the most serious among all postwar recessions.

This suggests that inventories have generally fallen by a smaller degree than in previous postwar recessions.

The reason is actually very simple: consumption has not been falling quite as fast, but businesses had been quite cautious about placing orders, and especially much more cautious about fixed investments.

In the highly competitive world of today, and with improvement in technology and particularly improvements in supply chain management, and with caution being the buzz word these days, inventories have now been pared to the bone, making it quite likely that the rebound in orders can be quite spectacular when they do come back.

Comments

[InvestBaboo:]

Correctamundo!

May 10 11:42 AM

[Prudent Man...:]

Unrealistic.

Wages are dropping, debt is increasing and the World Economy is shrinking because it over-expanded.

"Real" growth cannot come until we adapt to the realities, if we can and do.

The politicians are not going to stop spending and if government spending and creation of money could create prosperity their would be no poor countries or people. Is that realistic?

May 10 11:52 AM

[badScooter:]

Speaking as one of those (albeit small) businesses...there is a distinct wherefore to the caution. I'm being cautious because I think we are in no way headed for a quick recovery. I will gladly lose the bet, but the notion of most businesses waking up tomorrow and exclaiming "holy frass my inventory is too low!" does not correspond to my view of reality as a manufacturer.

May 10 12:09 PM

[Old Trader:]

I'd agree that there may well be a modest rise in inventories, because, as pointed out in the article, inventories have been slashed to the bone, so there must be a rebound to fill the empty spots on the shelves, but imho, the rise will be a VERY modest one of short duration. I can see things limping along for a considerable while in this fashion...i.e.....peri... modest rises for "restocking", followed by another slump back towards a very low level.

May 10 02:04 PM