Stocks and the business cycle


Over the past few decades, the influence of inventories on the economic cycle has steadily diminished. This decline is the result of a number of factors, including globalization and computing power. Yet, given the economic tumult from the pandemic and the war in Ukraine, many businesses have found themselves short of inventory and in desperate need of rebuilding.

More recently, others have found themselves in oversupply, with some market commentators suggesting this could quickly lead to deflation as these stocks sell off. Today’s result is a slightly confusing picture of what the current stock situation looks like. Meanwhile, looking a little deeper, as the supply chain situation normalizes, companies may also be forced to ask themselves if something structural has in fact changed, and if it is the case, what level of inventory will be needed to reflect this new world order.

In this Economics Weeklywe discuss short-term and longer-term inventory prospects.

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Richard de Chazal, CFA, is a London-based macroeconomist who covers the US economy and financial markets.


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