Transcript The importance of inventory data for business cycle analysis

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.
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Stockbuilding has been an important source of
recent economic weakness
US GDP growth (q-on-q, %) &
stockbuilding contribution (% pts)
Euro area GDP growth (q-on-q, %)
& stockbuilding contribution (% pts)
1.5
2
1
1.5
0.5
1
0
0.5
-0.5
2009:Q3
2009:Q1
2008:Q3
2008:Q1
2007:Q3
2007:Q1
2006:Q3
2006:Q1
GDP growth
2005:Q1
2004:Q1
2004:Q3
2003:Q3
2000:Q3
2000:Q1
2009:Q3
2009:Q1
2008:Q1
2008:Q3
2007:Q3
2007:Q1
2006:Q3
2005:Q3
-2.5
Stockbuilding
2005:Q3
-2
GDP growth
2005:Q1
2004:Q3
2004:Q1
2003:Q1
2003:Q3
2002:Q3
2002:Q1
2001:Q1
2001:Q3
2000:Q3
2000:Q1
-2
Stockbuilding
2006:Q1
-1.5
2003:Q1
-1.5
2002:Q3
-1
2002:Q1
-1
2001:Q3
-0.5
2001:Q1
0
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?
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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.
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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
-0.5
-1
2000:Q1
2000:Q2
2000:Q3
2000:Q4
2001:Q1
2001:Q2
2001:Q3
2001:Q4
2002:Q1
2002:Q2
2002:Q3
2002:Q4
2003:Q1
2003:Q2
2003:Q3
2003:Q4
2004:Q1
2004:Q2
2004:Q3
2004:Q4
2005:Q1
2005:Q2
2005:Q3
2005:Q4
2006:Q1
2006:Q2
2006:Q3
2006:Q4
2007:Q1
2007:Q2
2007:Q3
2007:Q4
2008:Q1
2008:Q2
2008:Q3
2008:Q4
2009:Q1
2009:Q2
2009:Q3
0.5
-1.5
-2
-2.5
Stockbuilding
Survey balance
Survey data from EU survey of manufacturing industry
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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
(bn 2005 US dollars)
2100
1900
1700
1500
1100
1996:Q4
1997:Q2
1997:Q4
1998:Q2
1998:Q4
1999:Q2
1999:Q4
2000:Q2
2000:Q4
2001:Q2
2001:Q4
2002:Q2
2002:Q4
2003:Q2
2003:Q4
2004:Q2
2004:Q4
2005:Q2
2005:Q4
2006:Q2
2006:Q4
2007:Q2
2007:Q4
2008:Q2
2008:Q4
2009:Q2
2009:Q4
2010:Q2
2010:Q4
2011:Q2
2011:Q4
2012:Q2
2012:Q4
1300
Actual
No growth contribution
Continued improvement
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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.
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