Will business pull us out of the recession? Some analysts think we are headed that way. Businesses have slashed $141 billion in inventories in the past month. Is this enough? Will businesses now start rebuilding inventories? If so, it could be just the right medicine to jump start the economy.
Let's take the auto industry. Inventory levels are low and the industry expects production to increase by 60% in the third quarter. This increase will add 2% to our GDP, according to Edward McKelvey, analyst at Goldman Sachs Group Inc (NYSE: GS).
Other suppliers are reporting that steel mills are starting to take longer to make delivery on orders. Steel Warehouse Company, for example, slashed inventories by 50% That company maintains steel inventories for producing mills. A turnaround in the auto industry could mean bigger profits for this company.
All of this is by no means a lock on a better economy. The shadow of high unemployment and sluggish consumer spending are still the big bogeymen out there.
It will be interesting to watch inventory numbers for August. Who knows, there may be a surprise and we start seeing inventory buildup in some areas. You can almost bet on the auto and steel sectors as they are tied together. We must note that the auto industry ran through $1 billion dollars in the "cash for clunkers" program and is getting another big shot in the arm from Congress.
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