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Inventories and Economic Growth

March 1, 2022 | Commentary

  • Q4 2021 GDP growth rate is estimated to be 7%. Economists cautioned that this was artificially high and not sustainable because 4% of the total came from additions to inventories.
  • COVID caused early errors in judgement by businesses followed by a surge in demand for consumer goods that could not be met.  Retail inventories plummeted and remain highly depressed. 
  • The Q4 2021 contribution of inventories to GDP was the proverbial drop in the bucket in terms of what is needed.  It is likely that inventory additions will be a positive contributor to the economy for many quarters to come.
  • The same economists who badly misjudged GDP growth in Q4 and all of 2021 are now predicting a sharp drop off in the growth rate for 2022.  They may be missing how robust consumption remains, how much work still needs to be done to restore inventories, and how much investment will need to be made in people and physical capital to close the gaps created by COVID.

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