Warning Flags, But No Danger

TO experts charting the U.S. economy, no short-range factor is more vital or volatile than business inventories. Economists estimate that see sawing inventories have been responsible for more than a third of the cyclical changes in U.S. industrial output between 1919 and 1946. Both the 1948-49 and 1953-54 downturns were "inventory recessions." They were caused by the fact that businessmen, worried by slipping sales, cut back their orders—and thus cut production —far more than the actual drop in sales. In the space of a few months during the 1953-54 recession, there was a whopping $7 billion shift...

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