Taking Inventory

Taking Inventory

With a light week of data releases on tap and no apparent end to bailouts in sight, now is the time to look at under-the-radar indicators that might shed some light on where the economy is headed. Take inventories, for example. As a recession deepens, stockpiled inventories become a widespread problem since manufacturers have to cut production activity as businesses need less stuff; profitability also takes a hit as companies are forced to slash prices just to get items off shelves.

Although inventory liquidation creates short-term pain, the process in fact represents a necessary condition for production to recover once demand picks back up. Results like those from Wednesday's print on wholesale inventories do offer a hint of optimism; however, like I said last week, this is only one month's worth of data and you need much more information before you can begin to spot those green shoots of an economic rebound.

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