Retail Inventory Behavior and Business Fluctuations

Abstract

THE enigmatic behavior of the U.S. economy during the 1980 recession makes it more imperative than ever that some of the mystery that surrounds inventory behavior be solved.On the surface, the economy seems to have reacted quite differently to what appear to be rather similar external shocks (principally, rapid increases in oil prices) in 1973-75 and in 1979-80.However, if one abstracts from inventory behavior and focuses on final sales, the two recessions look rather similar.Several observations confirm this.First, the briefest recession in U.S. history was also the first in which inventory investment did not swing sharply toward liquidation between the peak and the trough.Second, if one judges the contraction by real final sales instead of real GNP, the 1980 recession was actually far deeper than the "severe" 1973-75 recession.1And third, the way the 1980 recession was concentrated into a single quarter seems less unusual if one looks at real final sales instead of real GNP.