Friday, January 29, 2010

Inventory investment

Today's first look at 2009:Q4 GDP attributed 3.4 percentage points of the 5.7% annualized growth to changes in inventories. This is a good sign; inventory investment is one of the more volatile components of GDP that typically accounts for a large share of its decline during recessions.

It feels strange to conceptualize a reduction in a negative number, namely the net change in inventories, as a source of growth. But that still represents a net increase in investment goods sold to customers rather than either produced and stored by sellers or not produced at all.