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Inventory Good News…Kind Of

A columnist for Marketwatch notes that we are starting to move into slightly more familiar territory in this phase of what some have started calling the Great Recession. Basic economics reminds us that in good times inventories shrink as sales and demand grow faster than supply. In recessions, those inventories build up, not a good thing.

Because businesses have slashed production, the columnist reports that we are now at the point where supply is falling faster than demand. This does not mean the economy is getting better or that demand is going to go up anytime soon. It is still real tough to get a loan for anything, even those much lower priced houses, even with their much lower rate mortgages. And the slashing of production continues to help fill the unemployment rolls.

But like the other sort of good news we’ve been getting, it’s way better than the alternative, which is what we were seeing for most of the last year and a half. Hopefully that, plus Bank of America’s announcement today of a huge profit increase (albeit somewhat based on nonrecurring items and accompanied by a very sober report from their chief) will help continue the other recently good news – the five straight weeks of gains on the Dow Industrial Average. As they say in the commercials, “Optimism…pass it on…”