Global Expansion Threatened by Vehicle, Phone Glut.
Just-in-time inventories are turning into just-too-much at companies around the world.
From Dodge Ram pickup trucks to Sanyo mobile telephones, unsold goods are piling up around the world. That may become a drag on global economic growth as companies idle workers and production lines to clear out the excess.
Factory inventories worldwide rose faster than sales last quarter for the first time since 2001, according to economists at UBS AG in London. Behind the build-up: an unexpected slowdown in demand, especially in the U.S., brought on by the mid-year surge in energy prices and a housing slump.
Reducing the glut will be painful, says Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. ``The faster companies clear out inventories, the bigger the hit to the economy,'' LaVorgna says. ``This could ripple through the economy, to jobs and consumer spending.''
Companies as diverse as Rotterdam-based steelmaker Arcelor Mittal, San Francisco-based retailer Williams-Sonoma Inc. and doll-maker Zapf Creation AG of Roedental, Germany, are cutting production and orders to bring stockpiles in line with lower sales.
The risk is that the cutbacks start to feed on themselves, damping demand further through slower job growth and investment. Already, economists including Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York, and Peter Hooper, chief economist for Deutsche Bank Securities, have reduced forecasts for economic growth to reflect lower output.
Central Bankers' View
Central bankers brush aside concerns about the slowdown, arguing the production cutbacks will be self-correcting rather than self-perpetuating, allowing companies to raise output again once they've worked off the excess supplies.
Federal Reserve Chairman Ben S. Bernanke said in a Nov. 28 speech in New York that U.S. economic growth will strengthen next year as the housing slowdown and auto-production cutbacks exert less of a drag on the economy.
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