It is clear that the U.S. economy went through a significant cyclical adjustment in 2001 that was exacerbated by the effects of the terrorist attacks on September 11. That adjustment was characterized by sharp reductions in business investment and pronounced liquidations in business inventories and was compounded by the simultaneous economic difficulties of some of our major trading partners.
But there have been signs recently that some of the forces that have been restraining the economy over the past year are starting to diminish and that activity is beginning to firm. One key consideration in that assessment is the behaviour of inventories.