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August 07, 2005

Inventory Decumulation and the Macroeconomic Outlook

Alan Abelson writes:

Barron's Online - Up and Down Wall Street: Among the supporting signs and portents of the benign effects of what is shaping up as a torrid summer were the preliminary estimate of second quarter GDP (a nice 3.4% rise), the solid gain in durable-goods orders, encouraging retail sales, a gush of stellar earnings reports, an uptick in consumer sentiment and, not least, the cheerful chirping pervading the latest Federal Reserve economic report, the Beige Book, as the cognoscenti call it.

We could, without too much strain, point out the soggy underpinnings of some of these seemingly solid numbers. For example, the noteworthy lift in tech orders, we suspect, included a heap of double ordering by buyers spooked by an unexpected and likely temporary blip in business.

Or, as our colleague Randy Forsyth points out, the gleeful assumption by the sunshine crew that the inventory drop in the GDP report augurs big growth in output in the second half is more than slightly misplaced. The reason simply is that a huge chunk of the inventory reduction was the result of auto companies staging fire sales to clear their dealers' lots, an action certain to take a sizable bite out of future sales...

Posted by DeLong at August 7, 2005 07:16 PM