BW: Manufacturing Inventories May Not Rebound Quickly

By January 20, 2010Economy

BusinessWeek reporter David Bogoslaw finds reasons for black tears of rain in the current economy, reporting that “Lackluster Inventory Rebound May Hobble Manufacturers.” Expressing that point of view most clearly is Michael Englund, principal director and chief economist for Action Economics.

Rebuilding depleted inventories has often played a key role in recoveries from economic downturns. The stronger the bounce in consumer spending, the greater the need for companies to restock inventories, right? This time may be different. Since the two primary sources of consumers’ wealth—the value of their homes and their investment portfolios—have taken a substantial hit in the past 18 months, the chances of a strong restocking cycle don’t look good.

Englund sees the shortfall in demand coming less from consumers than from businesses, which are under-investing in structures, equipment, and software compared with normal cycles. Most of the weakness is due to a huge pullback in nonresidential construction on the back of the collapse in commercial real estate valuations, he says.

Bogoslaw also interviews the NAM’s chief economist, David Huether, who says inventory rebuilding will play a modest role, similar to the recoveries in 1993 and 2002.

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