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					The importance of
inventory data for
business cycle analysis
Working Group on National Accounts,
4-6 November 2009


Nigel Pain
Macroeconomic Policy Division
Economics Department
  Changes in inventories can be an important
    source of business cycle fluctuations:

• When final demand is unexpectedly weak, firms
  are typically left with excessive inventory holdings
  (which are costly to hold).
• Efforts to move inventories to more normal levels
  lead to cutbacks in new production, adding to
  downward pressures on the economy.
• The extent of such changes has proved very
  difficult to measure accurately and to anticipate.

                                             2
                           Stockbuilding has been an important source of
                                    recent economic weakness

                       US GDP growth (q-on-q, %) &                                                                                                                                                                                  Euro area GDP growth (q-on-q, %)
                    stockbuilding contribution (% pts)                                                                                                                                                          1.5                & stockbuilding contribution (% pts)
  2
                                                                                                                                                                                                                  1
 1.5
                                                                                                                                                                                                               0.5
   1
                                                                                                                                                                                                                 0
0.5
                                                                                                                                                                                                               -0.5
  0

-0.5                                                                                                                                                                                                             -1

  -1                                                                                                                                                                                                           -1.5

-1.5                                                                                                                                                                                                            -2
                                     Stockbuilding                                                                               GDP growth                                                                                                     Stockbuilding                                                                            GDP growth
 -2                                                                                                                                                                                                            -2.5
                                                                                                                                                                                                                                2000:Q3
                                                                                                                                                                                                                      2000:Q1




                                                                                                                                                                                                                                                                                                                2004:Q3




                                                                                                                                                                                                                                                                                                                                                        2006:Q3




                                                                                                                                                                                                                                                                                                                                                                                                                    2009:Q3
                                                                                                 2004:Q3




                                                                                                                                                                                                                                                                                                      2004:Q1




                                                                                                                                                                                                                                                                                                                                              2006:Q1




                                                                                                                                                                                                                                                                                                                                                                                                          2009:Q1
       2000:Q1
                 2000:Q3




                                                                                       2004:Q1




                                                                                                                               2006:Q1
                                                                                                                                         2006:Q3




                                                                                                                                                                                           2009:Q1
                                                                                                                                                                                                     2009:Q3




                                                                                                                                                                                                                                          2001:Q1




                                                                                                                                                                                                                                                                                                                                                                                      2008:Q1
                                                                                                                                                                                                                                                    2001:Q3




                                                                                                                                                                                                                                                                                            2003:Q3




                                                                                                                                                                                                                                                                                                                                    2005:Q3




                                                                                                                                                                                                                                                                                                                                                                            2007:Q3


                                                                                                                                                                                                                                                                                                                                                                                                2008:Q3
                                                                                                                                                                       2008:Q1
                                     2001:Q3




                                                                                                                                                             2007:Q3


                                                                                                                                                                                 2008:Q3




                                                                                                                                                                                                                                                                                  2003:Q1




                                                                                                                                                                                                                                                                                                                          2005:Q1




                                                                                                                                                                                                                                                                                                                                                                  2007:Q1
                           2001:Q1




                                                                   2003:Q1




                                                                                                           2005:Q1




                                                                                                                                                   2007:Q1




                                                                                                                                                                                                                                                              2002:Q1
                                                                             2003:Q3




                                                                                                                     2005:Q3




                                                                                                                                                                                                                                                                        2002:Q3
                                               2002:Q1
                                                         2002:Q3
              Projecting Inventories
• For GDP growth, what matters is the contribution made
  by changes in the rate of change of inventory levels .
• The normal forecast assumption is to set these to zero.
  (Quarterly alignment adjustments can be a problem.)
• But, in an upturn, a period of positive contributions is
  likely as economies recover.
• Projections require several important judgements:
    Are past changes measured accurately?
    What indicators are there of ongoing changes?
    What are the longer-term trends in inventory levels?

                                                   4
            Measuring Inventories

• Stockbuilding and stock levels can be estimated
  using information from business surveys.
   Some surveys only ask firms for an assessment
    of their stocks, rather than measured amount.
• Stockbuilding can be used as a residual to balance
  different estimates of GDP.
• Stockbuilding estimates can be adjusted to reduce
  any residual or puzzling GDP components.
• Timely stock level data are hard to obtain.
                                           5
                  Inventory data and surveys are
                      sometimes at odds…
             Contribution of inventories to quarterly GDP growth in
            Germany (% pts) and balance of survey respondents with
                         excessive stocks (normalised)
    3
  2.5
    2
   1.5
     1
  0.5
    0
         2001:Q2




         2003:Q2




         2005:Q2




         2007:Q2
         2001:Q3
          2001:Q1
         2000:Q4




         2002:Q2



         2003:Q1




         2004:Q4
         2005:Q1




         2007:Q1
         2000:Q2




         2003:Q3




         2005:Q3




         2006:Q4



         2007:Q3
         2002:Q3




         2004:Q2




         2006:Q2




         2009:Q2
         2002:Q1
         2001:Q4
         2000:Q1




         2007:Q4

         2008:Q2

         2008:Q4
         2000:Q3




         2003:Q4
         2004:Q1

         2004:Q3




         2005:Q4
         2006:Q1

         2006:Q3




         2009:Q1

         2009:Q3
         2002:Q4




         2008:Q3
         2008:Q1
  -0.5
    -1
  -1.5
   -2
  -2.5
                             Stockbuilding      Survey balance

Survey data from EU survey of manufacturing industry             6
         Timely inventory level data can help inform
                assessment and projections.
• To illustrate, suppose either that:
    A zero contribution of private stockbuilding to US GDP growth
      from 2009Q4 onwards:
    Or, a change in stockbuilding in each quarter equal to the change
      in 2009Q3 (implying a small, positive contribution to growth):
                   Real private industry stock level
  2100                  (bn 2005 US dollars)

  1900

  1700

  1500

  1300

  1100
          1997:Q2
         1996:Q4




         1999:Q4



         2001:Q2




         2010:Q2
         2003:Q2




         2005:Q2




         2007:Q2




          2011:Q4
         1999:Q2



         2000:Q4



         2002:Q2
          1997:Q4

         1998:Q4




         2004:Q4




         2006:Q4




         2009:Q4
         1998:Q2




          2011:Q2



         2012:Q4
         2000:Q2




         2004:Q2




         2006:Q2




         2009:Q2
         2001:Q4




         2003:Q4




         2005:Q4




         2007:Q4

         2008:Q4
         2008:Q2




         2010:Q4



         2012:Q2
         2002:Q4




                                                                         7
          Actual      No growth contribution   Continued improvement
                      Summary
• Inventory data are an important source of
  business cycle fluctuations.
• It is not always clear what is included in the
  published inventory data and whether it is actual
  data or just a balancing adjustment.
• The data can give a different picture to that
  provided directly by business surveys.
• Quarterly balance sheet information on inventory
  levels is lacking in most countries.
• All these factors complicate policy assessments,
  and economic projections.
                                            8

				
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posted:9/17/2012
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