vrijdag 30 januari 2015

Business Inventory to Sales Ratio Vs. GDP

Inventories can be considered a part of a group of leading indicators of business cycles. Whenever inventories surge, a possible reason could be a decrease in consumer demand. The result is that producers will cut output and sales. This will translate in a lower GDP growth.

It is worthy to plot the business inventory to sales ratio against GDP growth.

Following chart shows that the blue line is leading the red line. As inventories build up and sales go down (blue chart goes down), GDP growth will follow the trend (red chart goes down).

Since 2012, the inventories have continued to build up against lower sales, so I expect GDP growth to slow down.

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