The inventory build that boosted the U.S. economy this year is slowing, The Wall Street Journal reports, as companies are more closely matching their output to demand. The direction of manufacturers’ inventories is a critical one, as inventory rebuilding contributed 2.6 percentage points to the first-quarter’s 3.7% gain in gross domestic product, but only about 0.6% of the second-quarter’s 1.7% GDP gain.
“Firms continue to report overall declines in inventories,” said a report from the Federal Reserve Bank in Philadelphia. And, the Journal says, a similar report from the Dallas branch showed declines in materials and finished goods inventories, though at a slower pace than recent months.
The so-called bullwhip effect, whereby a post-recession resumption of demand creates a snap-back effect that’s often larger than customer demand, is waning as inventory gains slow and companies are more closely matching their output to demand.
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