This development is important because the reduction in the rate of inventory liquidation has induced a rise in industrial production. The pickup in the growth of activity, however, will be short-lived unless sustained increases in final demand kick in before the positive effects of inventory investment dissipate.
We have seen encouraging signs in recent months that underlying trends in final demand are strengthening, but the dimensions of the pickup are still not clear. A number of crosscurrents are likely to influence household spending this year. Through much of last year’s slowdown, housing and consumption spending held up well and proved to be a major stabilizing force.