As has often been the case in the past, the behavior of inventories provided substantial impetus for the initial strengthening of the economy. Manufacturers, wholesalers, and retailers took vigorous steps throughout 2001 to eliminate an unwanted buildup of stocks that emerged when final demand slowed late in 2000.
By early this year, with inventory levels having apparently come into better alignment with expected sales, the pace of inventory reduction began to ebb, and efforts to limit further drawdowns provided a considerable boost to production. The available evidence suggests that, in some sectors, liquidation may be giving way to a rebuilding of inventories.