What indicator is former Federal Reserve Chairman Alan Greenspan following most closely these days? No, it's not consumption, business investment, or even the jobs market. It's inventories. "That's a peculiar thing to say," the 84-year-old economist admitted in a Bloomberg Television interview on Mar. 26. But "inventories are critical now."
Companies slashed stockpiles by a record amount last year as demand for their products nosedived. That aggressive de-stocking aggravated the downturn and helped make the decline the deepest since the 1930s. In fact, corporate shedding of inventories accounted for almost a third of the 2.4% contraction in the American economy last year.
Now, with the economy showing signs of recovering and sales picking up, the reverse dynamic is about to set in.