Economics Weekly: Keeping Stock—Do the Recent PMI Improvements Herald a Major Reflation?

Friday, November 22, 2019

"A few manufacturers suggested that their customers let inventories run too low in anticipation of a more significant manufacturing slowdown than has materialized. As a result of the need to restock, demand for these manufacturers' products picked up in recent months. Other manufacturers reported that demand continued to soften, citing a global slowdown in industrial activity and persistent trade-related uncertainties." – Fed's Beige Book, October 25, 2019

When looking at the wider macroeconomic picture, inventories don't tend to be a major feature on the landscape given that they eventually expand or contract by enough to meet changes in real final demand. In the very near term, however, they can have a profound impact on growth, and such is the case today. At the moment, inventories are presenting some evidence that the recent modest improvement in the industrial data (which investors have become extremely excited about) is unlikely to be the start of a new V-shaped recovery. In this week's Economics Weekly, we take a look at recent industrial activity, in particular inventories, and what they are telling us about current and expected future economic activity into early 2020.

For a copy of this report or to subscribe to the Economics Weekly or Economic Indicators reports, please contact your William Blair representative.

Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.

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