Regarding Alan Blinder's Reliance On Inventory Rebuilding

Alan Blinder wrote an editorial in Wednesday's Wall Street Journal extolling his summer prediction of growth later this year in the US economy. In addition, he laid out a case for continued growth and, to read Blinder's views, an essentially normal US economy.

There were, however, three aspects to his editorial which I found questionable.

First is his seemingly blithe dismissal of Fed and fiscal intervention as being so important for what growth we've seen in the past two quarters. For all that, Blinder calls himself "cautiously optimistic."

Second, he is betting on personal savings rates remaining anemic. He more or less blows off the recent rise in the rate, claims everyone is overstating it, and then effectively determines that the savings rate won't really factor into the economy's near term recovery.

If the deleveraging about which I've written, and others have observed, is real, Blinder is underestimating the effect that consumer savings will have on the economy. It will result in less growth than he expects.

But the point Blinder makes about inventory builds was what really caught my eye. He asserts that "firms will not want to deplete their stocks indefinitely."

A quick canvass of some business colleagues confirmed that Blinder has missed the transition from inventory cycles to more smoothly-linked supply chains. Of course, government data collection measures inventories. But that doesn't mean they exist as they did 10, 20, or 40 years ago.

In a similar fashion, SIC codes are laughably out of date. You can see how companies are classified, but the density of GDP among the codes is totally skewed from what it was at their inception.

Back to inventories.

One of my friends is the chief engineer for a lab equipment supply firm. They don't even order raw materials until they have orders in hand.

Four years ago, a friend of mine with a major consumer products company said, to paraphrase him,

'We've been studying warehousing, and we think in the future, it will look a lot like JB Hunt.'

That's the trucking firm. He meant they were transitioning to a steady, constant supply of goods from their factories onto trucks to major customers.

I personally don't believe the inventory rebuild that so many pundits believe will rescue the US economy is coming.

Economists who don't work in industry may not be realizing how much has changed in the US economy in the past few decades. Perhaps they are the same economists who still believe modern recoveries will bring job growth, despite that not being true for nearly 30 years.

Near-seamless, contemporaneous producer builds for end customers has been a holy grail for decades. With modern IT, intra-vendor links and the internet, it's come to the point of being essentially here for many firms and sectors.

In the ideal business world, inventories don't exist. In time, perhaps they'll only exist in the minds of economists and old, antiquated government economic data series.