主题：04/08/2009 Market View -- 宁子

Wholesale Inventories Tumble. Good or bad?

At -1.5% February inventories more than doubled the downside expectations and the -0.7% in January (revised from -0.9%). Sales rose 0.6%. Those are the facts.

Now the argument. Lower inventories mean less is being produced or the same amount produce and just more buying as seen given the rise in sales. Either way production is still quite weak. One side says this is bad: manufacturers are not making much and wholesalers don't need much and thus the fall is a bad thing. It will be reflected in the GDP numbers as a bad thing as inventories pump up GDP.

That in itself is a major problem. If inventories are high that often indicates a slowing economy and thus the increase in GDP based upon those bloated inventories provides a false sense of security as to economic health. The flip side is the other side of the economic cycle, the part that we are clearly in here. When that occurs, lean inventories ultimately mean rising production. As the economy recovers wholesale shelves will need to be restocked and that means manufacturing has to kick in to do so. Of course that is a positive.

Thus the cycle determines if inventory levels are good or bad. In this instance the sharp decline is a positive because when the cycle turns producers will have to get with it. Happened the last recession AFTER we finally got through all of that tech inventory. This time there was nowhere near the problem and thus companies are in much better shape in that sense. Once credit flows and there is a reason to produce, they will be willing, able and ready to do so.