Changes in Inventory Management: Implications for the U.S. Recovery

by Jane Sneddon Little
November/December 1992

Inventories usually rise relative to sales during recessions, but they have remained remarkably lean during the recent downturn and the ensuing period of unusually slow growth. This article describes recent changes in inventory management and then presents statistical evidence that the introduction of these new techniques represented a structural change for the U.S. economy.

The article also explores the implications of this structural shift for the current recovery. In the long run, reducing inventories permits greater efficiency and improves U.S. economic welfare. However, in the short run, the transition to improved inventory management is exerting a noticeable drag on the pace of economic growth. Presenting evidence that the transition is not yet complete, the article concludes that the ongoing introduction of lean inventory practices represents a structural impediment to a rapid recovery.

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