Inventories problems in both the economy and the GDP
- Inventories: These are goods in storage and ready for sale. Stocks can also be raw materials stored for the production of products. In this context, stockpiles result in economic problems.
- Economy: This refers to the actual state of the country or globe in terms of money supply and production of goods and services in consecutive years.
- Gross domestic product (GDP): GDP refers to a measure of the financial worth of all the completed products and services within a definite time-based of the market value.
In this video, Don mentions that inventories are causing problems in both the economy and the GDP. He suggests that stockpiles are creating a negative percent in the GDP growth rate since inventories are subtracting from the GDP. In the wake of the Corona Virus, people have been building upon stocks to avoid trade tariffs. Don also shows how inventories have affected the sales ratios. His analysis shows high inventory levels paired with the collapse in demand have resulted in skyrocketing inventory-to-sales ratios. Stocks are far in excess due to the pile-up.
A decrease in consumption results in an increase in inventories as enterprises accumulates unsold goods. Low sales rate result in the limited circulation of money and resource in the economy, leaving the country, business people, and citizens at a losing end. Changes in inventories, which are mostly less than 1% of the Gross domestic product, are essential as they create an equal flow to the evolution of unsold stock. These changes are a sign of aggregate demand. Inventories are minimized through a reduction in bulk manufacturing, minimizing demand variability, accurate forecasting, reducing order sizes, configuring the supply chain, and continuously addressing capacity issues. Careful planning and necessary adjustment to inventory management activities maintain a balance between production, demand, and supply, thus reducing stock ups.