Might All Future U.S. Recessions Be This Mild?

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Might All Future U.S. Recessions Be This Mild?

Pointing out that the current economic downturn has been relatively mild, some economists are suggesting that future U.S. recessions are likely to be mild, too.

The evidence for this assertion lies in the relatively small stacks of steel at the factories of manufacturers like General Motors and the similarly small stacks of merchandise at retailers like Sears, Roebuck and Co. In part because of computerized techniques, such inventories were kept low going into the recession. And that's good.

Keeping inventories low is a lot like staying on the lower rungs of a ladder: It minimizes the danger of getting hurt.

In a typical recession, much of the damage is done as manufacturers close factories, allowing retailers to sell gradually from their bloated inventories. But in the late 1980s, U.S. manufacturers never climbed too high on the inventory ladder. Making extensive use of computers and "just-in-time" techniques, they kept their inventories to the bare minimum.

Leveling the Business Cycle

"We've shaved the peaks and valleys off the business cycle by adopting these techniques," said Richard Berner, chief economist at Salomon Brothers Inc.

In the past, even as the United States neared a recession, factories were often churning out products as if oblivious of the impending hard times. But now, with computer scanners at grocery-store checkout counters and other retail outlets, manufacturers are able to spot sales slowdowns much more quickly.

In fact, some observers have been surprised that business inventories have kept declining so much in recent months, given their already low levels.

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