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August 30, 2006
Slow growth
BEA revised its estimate of 2Q GDP up slightly this morning. As the Wall Street Journal reported - GDP Is Revised Up to 2.9% Rate On Stronger Inventory Building:
The U.S. economy didn't brake as hard last spring as first thought, said the government, raising its estimate for second-quarter growth partly because of stronger inventory building by businesses.
Wait a second. This is a good thing? In the old business cycle models, rising inventories was a sign of an impending recession as productive capacity outstripped demand, unless inventories were excessively low. And in today's just-in-time production process, what is an excessively low inventory level? Just because we are putting more things into warehouses doesn't mean the economic is doing better.
And what about all those intangibles which can’t be warehoused? How do we account for them in this model?
Too many questions, not enough answers.
Posted by Ken Jarboe at August 30, 2006 9:49 AM
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