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Technology Stocks : Seagate Technology
STX 280.08-0.4%Dec 30 4:00 PM EST
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To: Pierre-X who wrote (5140)6/22/1998 10:31:00 AM
From: Robert Douglas  Read Replies (1) of 7841
 
Pierre,

You wrote in an earlier post:

Are you saying that inventories are a primary driver of economic cycles? I would venture to say that the converse is true. Inventories are the result of misalignment between production and consumption => a trailing indicator rather than a leading one. Trailing indicators are good for telling you where you've been but no use to investors scrying into the future.

Wrong. The Conference Board, which took over in keeping the leading, lagging, and coincident indicators from The Department of Commerce, classifies both of its' series on inventories as leading indicators. Each of the two series on "inventory investment" (their term) have historically led at the peak and the trough of the business cycle.

As for their use for investors, I find the numbers on inventories an invaluable tool in predicting the business cycle. Your description of inventory resulting from a misalignment of production and consumption is only true for a portion of inventories at a few extremes. Inventories are presently in excess of one trillion dollars in the United States and represent one of the larger costs of doing business. What you are referring to, I believe, is what is called involuntary inventory. This results from the misalignment you mention and when occurring is usually an ill omen for that particular industry or the economy as a whole. This involuntary accumulation is precisely what to look for in forecasting. I wouldn't dismiss its' use so perfunctorily.
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