INVENTORY

A lot has been said on this topic, and I frankly never took much note of it.

 

If I understand it as the economy slowed down and consumers stopped spending like they did in the past, inventory built up and production dropped off to cater for the lower demand. As production numbers dropped as evidenced by weaker GDP numbers the consumption that was taking place drew inventories down to a level that required replenishing.

 

So we have now witnessed a topping up of inventories to cater for consumption even though it is still muted, but this inventory build up has caused production to increase and will therefore be reflected in the current GDP numbers as an increase.

 

If my summary of how inventory works on a simplistic level, then surely we are completing cycle 1, to draw inference that this is the bottom surely needs further evidence whether demand is likely to pick up significantly, or will we go through another cycle of weak demand, increased inventory build up and lower production and lower GDP.

 

Am I missing something or are we ignoring the cyclical / secular debate.