Today’s Upshot looks at the not-as-mundane-as-it-sounds inventory levels. What makes inventory levels so interesting is that it was a rebuilding of inventory levels that so boosted manufacturing, after businesses depleted inventories in the early stages of the recession.
But now that cycle is pretty much over, and companies are going to have to make money the old fashioned way: petition Congress for tax breaks. No, no, we’re kidding there. But the easy money from inventory rebuilding is over.
From today’s column:
The inventory build that boosted the U.S. economy this year is slowing. Third-quarter earnings reports reflect rising uncertainty among manufacturers whether the inventory elastic stretched too far, and could snap back later this year or next.
The so-called bullwhip effect, whereby a post-recession resumption of demand creates a snap-back effect that’s often larger than customer demand, is waning as inventory gains slow and companies are more closely matching their output to demand.
Tool maker Stanley Black & Decker Inc.’s retail customers are being very cautious with their inventory levels, said Chief Operating Officer James Loree on a call last week. If the holiday season doesn’t prove very strong, the odds will increase for an inventory correction.
“We don’t expect any earth-shattering inventory corrections,” he said. But if sales are weak in late November or early December, “there is a chance that there could be more inventory correction than normal in this particular year.”