inventory investment


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inventory investment

the INVESTMENT in raw materials, WORK IN PROGRESS and finished STOCK. In contrast to FIXED INVESTMENT, inventories are constantly being ‘turned over’ as the production cycle repeats itself, with raw materials being purchased, converted first into work in progress, then into finished goods, then finally being sold.

The level of inventory investment made by a firm will depend upon its forecasts about future demand and its resulting output plans, and the amount of stock it needs to allow for delivery delays on raw materials and production delays in serving customers with appropriate buffer stocks to cover unforeseen contingencies. Frequently firms find that actual levels of demand differ from their forecasts, so that demand is less than expected and firms find that stocks of unsold goods build up (unintended inventory investment); or that demand exceeds expectations so that stocks run down (unintended inventory disinvestment). The cost of inventory investment includes order and delivery costs, deterioration and obsolescence of stock and interest charges on funds invested in stock. Firms seek to minimize these costs by establishing economic order quantities and optimum stockholding levels. See STOCKHOLDING COSTS.

inventory investment

the INVESTMENT in raw materials, WORK-IN-PROGRESS, and finished STOCK. In contrast to FIXED INVESTMENT, inventories are constantly being ‘turned over’ as the production cycle repeats itself, with raw materials being purchased, converted first into work-in-progress, then finished goods, then finally being sold.

The level of inventory investment made by a firm will depend upon its forecasts about future demand and its resulting output plans, and the amount of stock it needs to allow for delivery delays on raw materials and production delays in serving customers, with appropriate buffer stocks to cover unforeseen contingencies. A firm can minimize these buffer stocks by negotiating JUST-IN-TIME delivery arrangements with suppliers.

Frequently, a firm finds that actual levels of demand differ from its forecasts, so that demand is less than expected and the firm finds that stocks of unsold goods build up (unintended inventory investment); or that demand exceeds expectations so that stocks run down (unintended inventory disinvestment). Such inventory investment and disinvestment tends to occur with downturns and upturns in the BUSINESS CYCLE.

In aggregate terms the rate at which all firms accumulate and run down their stocks influences the level of economic activity. The increase and decrease in stocks operates on the same ACCELERATOR principle as fixed investment, so that widespread changes in business confidence or EXPECTATIONS about future levels of demand influence current stockbuilding decisions, which, in turn, have a magnified influence on levels of output and employment through the MULTIPLIER effect.

References in periodicals archive ?
The Department of Commerce indicated in a report that the GDP estimate released today is based "on more complete source data than were available for the "advance" estimate issued last month." It noted that in the advance estimate, the increase in real GDP was 2.1 percent, where the revision "primarily reflected downward revisions to state and local government spending, exports, private inventory investment, and residential investment that were partly offset by an upward revision to personal consumption expenditures (PCE)." The report noted that the percent change in real GDP in the second quarter was revised down 0.1 percentage point from the advance estimate." For his part, President Donald Trump tweeted "the Economy is doing GREAT, with tremendous upside potential!
The Atlanta Fed indicated slight declines in the nowcasts of the contributions of consumer spending and nonresidential equipment investment to Q3 following last Friday's light vehicle sales release were offset by an increase in the contribution of inventory investment after that same release and following today's wholesale trade report.
"We want to enable maximized in-stock positions with the least amount of inventory investment possible.
Easy expansion for the next owner who has the right working capital for inventory investment. Additional car services offered - auto surface protection, exterior & interior car care, paint correction, new car protection.
WASHINGTON: US wholesale inventories were unchanged in July as previously reported and sales recorded their biggest drop in six months, suggesting a modest boost to third-quarter economic growth from inventory investment. An outright drop in inventory investment weighed heavily on economic growth in the second quarter and some economists believe the inventory correction is close to running its course.
Growth was bolstered by stronger consumer spending and exports, but was weighed down by a decline in private inventory investment, real estate investment and local government spending.
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The department's third estimate for GDP reflected a downward revision to imports and an upward revision to inventory investment, which were offset by downward revisions to exports, to housing and state and local government spending.
This is bad news for hiring and inventory investment. Small business owners continued to liquidate inventories but at the lowest frequency in 35 months.
The small acceleration in real GDP primarily reflected a sharp downturn in imports, an acceleration in consumer spending, an upturn in residential fixed investment, and an acceleration in exports that were mostly offset by downturns in inventory investment and in federal government spending, a deceleration in nonresidential fixed investment, and a downturn in state and local government spending.
The Turkish economy bottomed out in the first quarter of 2009, posting a double-digit growth in the first half of 2010 on recovery of consumer spending and corporate investment on top of recoupment of inventory investment which had substantially fallen in the previous year.

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